Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

Oral Answers to Questions — WALES

Economic Development

Mr. Wigley: asked the Secretary of State for Wales whether he will now publish an economic plan for Wales as a guideline for the work of the Welsh Development Agency and other bodies concerned with the economic development of Wales.

The Secretary of State for Wales (Mr. John Morris): I refer the hon. Member to the answer which I gave him on 21st June. The information they require is already available to these bodies.

Mr. Wigley: Is the right hon. and learned Gentleman aware that a report to come out next Wednesday from the Development Corporation is likely to make his reply look pedestrian and totally unresponsive to the needs of

Wales? Is he aware of the general demand in Wales for a national economic development plan, manifested in evidence to his Office by such bodies as the Town and Country Planning Association and the South Glamorgan County Council? Does he realise that if we are to attract investment from overseas we must have a strategic industrial development plan of this sort? Does not his answer mean that he is stubborn, ignorant or impotent in this matter?

Mr. Morris: I shall not trade insults with the hon. Gentleman. I hope that the House will accept that I try not to be ignorant or stupid, or to be what the hon. Gentleman suggested with his third adjective. There has been some disputation in the Press about the publication of plans. I have less confidence in plans that the hon. Gentleman does. I had cause to examine the plan put up by the Welsh National Party in the early part of this year. I think that in the course of my replies that plan—certainly the first one put forward—was completely demolished.

Mr. Anderson: Does my right hon. and learned Friend accept that there is already a planning structure and a planning necessity at local authority level? What basis of realism can there be for the local authority plans unless there is an attempt at least to co-ordinate them on an all-Wales basis?

Mr. Morris: I accept what my hon. Friend says. The local authorities are


getting on with their structure plans. I am told that any grandiose plan at this stage would be unnecessary for the purpose of preparing plans and would hold up the process upon which the authorities are engaged. But obviously one is constantly updating not plans but policies. Hence the special development area status for North-West Wales, development area status for part of South-East Wales, the setting up of two major agencies, and the special plans we have made for Ebbw Vale. We are considering the problem of North-East Wales in the light of the Courtaulds closure.

Mr. Nicholas Edwards: Why on earth should anyone want an economic plan from this Government when all they have done so far is to produce empty factories, falling production, rising unemployment and fewer resources for the social services?

Mr. Morris: The hon. Gentleman is aware how miserably and lamentably his Government fell down in 1973. When factories were urgently needed in Wales, they cut factory building. We have doubled the number of factories built in Wales.

Severn-Trent Water Authority

Mr. Geraint Howells: asked the Secretary of State for Wales if he has any plans to bring part of the Severn-Trent Water Authority area in Wales under the jurisdiction of the Welsh National Water Department Authority; and if he will make a statement.

The Under-Secretary of State for Wales (Mr. Alec Jones): No. A water strategy for England and Wales, the need for which was amply demonstrated during the summer drought, requires a unified river basin management system. The present boundaries between the Welsh National Water Development Authority and the Severn-Trent Water Authority secure this.

Mr. Howells: Does the hon. Gentleman agree that the Mid-Wales area is the best water catchment area in the whole of Britain, and that the Welsh National Water Development Authority has been at a financial disadvantage since its inception, because the Mid-Wales area is not under its jurisdiction?

Mr. Alec Jones: It is true that part of Powys, the old Montgomery area, is under the Severn-Trent Water Authority, but that is because it is the upper catchment area of the River Severn, and the experience of all those who have had anything to do with water supply in recent years shows that one cannot have effective and efficient control over water supplies or sewerage and sewage disposal without a unified river basin management system.

Mr. Anderson: Does my hon. Friend agree that one of the lessons of the drought was the interdependence of the water authorities in England and Wales and the need for a rather more centralised structure, for which the Government are pressing?

Mr. Alec Jones: I agree that that was one of the most valuable lessons. I hope that we shall all learn that the only means of combating such a period of drought is to secure the maximum co-operation between the water authorities but to let the responsibilites of the separate authorities depend upon the unified river basins.

North-East Wales

Sir A. Meyer: asked the Secretary of State for Wales if he will make a visit to North-East Wales.

Mr. John Morris: I have no immediate plans to do so.

Sir A. Meyer: Is the Secretary of State aware that if he were to come to Mold next Friday he would find hon. Members from Clwyd and Merseyside grappling with the appalling problems of unemployment caused by the failure of his Government to tackle inflation in good time? Does not this co-operation between Clwyd and Merseyside make nonsense of the priority accorded by the Government to the setting up of a Welsh Assembly, which will make no contribution whatever to solving the urgent problems of Wales?

Mr. Morris: I shall reserve to a later stage my comments on the last part of the hon. Gentleman's question. I regret that I cannot be in Mold next Friday, because I shall be in my own constituency. But I always recognise the value of co-operation in dealing with unemployment


problems. I am sure that even the hon. Gentleman would not blame this Government for the recent decision of Courtaulds.

Mr. D. E. Thomas: Does the right hon. and learned Gentleman accept that many of us were disappointed that he was unable to visit Clwyd last week because of his engagement with the publication of the Scotland and Wales Bill? Will he assure the House that he will visit Clwyd in the very near future and that, before doing so, he will read the recent economic review published by the county council, which estimates a job need of at least 40,000 in the next 10 years? When he next comes to Clwyd, will he also take the opportunity of talking to some of the redundant workers in milk processing in my constituency?

Mr. Morris: I do not know how far the hon. Gentleman is familiar with the problems of Clwyd, for the greater part of which he is not the Member. I assure him that my hon. Friend the Under-Secretary of State keeps me in close touch with the major problems of Clwyd. I regret that I was unable to carry out an engagement there last week, but, as the hon. Gentleman kindly said, I was engaged with the publication of the devolution Bill, the importance of which I am sure he appreciates.

Welsh Assembly (Members' Salaries)

Mr. Wyn Roberts: asked the Secretary of State for Wales what estimate he has made of the annual salary and cost of individual Members of the Welsh Assembly.

Mr. John Morris: I refer the hon. Member to the Explanatory and Financial Memorandum to the Scotland and Wales Bill. I will in due course fix the initial salaries and allowances, but it will be for the Assembly itself to take the final decision.

Mr. Roberts: In view of the fact that, in addition to the Members of the Assembly, who according to the preamble to the Bill will cost £2½ million a year, there will be the necessity for 1,300 civil servants at a cost of £10 million a year, will the Secretary of State now withdraw his oft-repeated statement that devolution does not mean an extra tier of government?

Mr. Morris: The hon. Gentleman knows full well that this is not an extra tier but is the existing tier of government. It is the whole range of responsibilities which are now being carried out by the nominated bodies in Wales. We never hear Tories attacking them. The Tory Party knows that it is a permanent minority party in Wales. The nominated bodies are the means whereby the Tory Party seeks to perpetuate its control over Wales, in or out of office. We know that so far no Tory Prime Minister has appointed a Secretary of State for Wales from among Welsh Members.

Mr. Abse: Will my right hon. and learned Friend come back to the original Question instead of scattering fire at targets which are not in existence? Is it not a fact that the cost of each Assembly man, together with the support that he gets, is now declared to be £31,250, which means that 80 Assembly men will receive £2½ million by way of salary and support? Is it not also a fact that it will cost £7,692 for every one of the 1,300 civil servants who are to be appointed at a total cost of £10 million? How can the Secretary of State expect local authorities throughout Wales to reduce their expenditure at a time when he is embarking upon an extravaganza which is repellent to the overwhelming majority of the people of Wales?

Mr. Morris: I am sure that my hon. Friend will develop those points at length in the course of the devolution debates. This is the price of democracy. Whatever Government are in power in Westminster, I want to ensure that there is democratic government in Wales.

Mr. Wigley: Will the Secretary of State draw the attention of his hon. Friend the Member for Pontypool (Mr. Abse) and the hon. Member for Conway (Mr. Roberts) to Clause 86 of the Bill, which empowers the Assembly to dissolve nominated bodies in Wales? Will he calculate the benefit and the cost saving from so doing and indicate that a 2 per cent. improvement in efficiency in the spending of the block allocation would more than repay the costs of the Assembly?

Mr. Morris: These matters must be put in the right perspective. If we were to have better control over some of the nominated bodies in Wales—indeed, more


democratic control, which is what I am after—I am sure that it would lead to better, more efficient and economical government.

Mr. Roberts: Is it not a fact that we shall continue to have nominated bodies, the only difference being that they will be nominated by the Assembly rather than by the Secretary of State?

Mr. Morris: If the hon. Gentleman will study the Bill, he will find a power to enable the Assembly—I sincerely hope that it will use it—to take it upon itself—

Mr. Roberts: indicated dissent.

Mr. Morris: There is no reason for the hon. Gentleman to shake his head—to subsume the responsibilities of many of these bodies. That is what I want to see in Wales.

Water Equalisation Bill

Mr. Roderick: asked the Secretary of State for Wales by what date he expects the Water Equalisation Bill to affect the payments made by consumers in Wales.

Mr. Alec Jones: Subject to the will of Parliament, I hope that the Bill will reach the statute book in time to affect domestic consumers' bills in Wales in the next financial year.

Mr. Roderick: Is my hon. Friend aware that the Bill will receive the warmest of welcomes in Wales? Charges for water have been a sore point for some time. I appreciate the difficulties involved. However, will my hon. Friend press for a greater degree of equalisation than is envisaged in the consultative document which was published earlier this year?

Mr. Alec Jones: I am grateful to my hon. Friend for his welcome for the Bill. I am sure that it will be welcomed by domestic water consumers in Wales. The present system of equalisation will, by its very nature, run out in time. That is why we propose to ask the new central body to envisage a more permanent system of equalisation charges affecting Wales.

Mr. D. E. Thomas: Will the Under-Secretary tell us—if not today, at least when the Bill is brought forward—

whether the greater benefit to be obtained by charging an economic rate for the export of water from the Welsh National Water Development Authority's area to areas in the Midlands of England will be made available to the Authority?

Mr. Alec Jones: I know that the hon. Gentleman and his colleagues are great ones for wanting to charge for water. The majority view in this House and in Wales is that we need to secure fairness between water consumers in Wales and in England. The charging policy advocated by the hon. Gentleman is a positive disincentive to building urgently needed reservoirs in Wales and in other parts of the United Kingdom.

Sully Hospital (Cardiac Unit)

Sir Raymond Gower: asked the Secretary of State for Wales what effect the closure of the cardiac surgical unit at Sully Hospital has had on the waiting period for patients requiring cardiac surgery; and if he will make a statement.

The Under-Secretary of State for Wales (Mr. Barry Jones): Following closure of the Sully cardiac surgery unit there was an initial increase in the waiting list, subsequently aggravated by infection problems in the University Hospital of Wales' operating theatres. This year there has been a steady reduction in the number of people waiting for operations. Already this year some 300 operations have been performed at the University Hospital, and the waiting list is little more than half the corresponding figure last year.

Sir Raymond Gower: Is the Minister aware that, whatever the merits or demerits of the long-term proposal to close the cardiac unit at the Sully Hospital, the step that was taken some time ago was premature and ill advised? Is he further aware that, in the view of many consultants, had the unit been kept at Sully many patients would not have had to wait so long or otherwise have had to be sent to London at great expense?

Mr. Barry Jones: The hon. Gentleman's right hon. and learned Friend the Member for Hendon, South (Mr. Thomas), the then Secretary of State for Wales, sanctioned this change in November 1970. In 1974 the University Hospital carried out 261 operations. So


far this year there have been 298 operations. Both these totals are more than in any of the last five years at Sully.

Rate Support Grant

Mr. Nicholas Edwards: asked the Secretary of State for Wales if he will make a statement on the impact of the rate support grant on Welsh local authorities.

Mr. D. E. Thomas: asked the Secretary of State for Wales what is the level of rate support grant which will be made to each county in Wales for the year 1977–78.

Mr. John Morris: In common with local authorities generally, the percentage of expenditure of Welsh local authorities met by RSG will be lower next year. The impact on the ratepayer will depend on decisions taken by individual authorities, but generally speaking the average impact on the Welsh domestic ratepayer should be less in cash terms than in England. The share of the needs element of RSG to Welsh authorities as a whole next year will not change significantly and the differential in the domestic element in favour of Wales is to be retained. Information which will enable a provisional assessment of the amount of RSG needs element to be made is being sent to authorities today.

Mr. Edwards: Is the right hon. and learned Gentleman basing that statement largely on domestic support continuing at the same rate? Is it not a fact that the burden falling on local authorities from reduced Government grants will in every Welsh county be above the national average of 15 per cent., that for four Welsh counties it is likely to be over 20 per cent., and that for the unfortunate citizens of Dyfed the burden is forecast at 24 per cent.? Why is it that once again Wales seems to be doing so badly?

Mr. Morris: Wales is not doing badly. I am sure that the hon. Gentleman will want to study this matter. It is a tough settlement. The average rate bill in England will increase by about £15 and in Wales by about £11. The absolute increases in rate bills are likely to be smaller than average in Wales. Our

share of the needs element remains roughly the same. The differential in our favour in respect of the domestic element is unchanged. No one can seriously say that this element discriminates against the Welsh ratepayer.

Mr. Thomas: Will the right hon. and learned Gentleman calculate the likely reduction in the levels of social and educational services offered by Welsh counties as a result of the RSG settlement? How many day centre places for the mentally ill will be lost, how many nursery places will be lost, how many road improvements will not be undertaken and how many jobs in local authorities in Wales will be lost as a result of the settlement?

Mr. Morris: I am the first to concede that this is a tough settlement. However, it is for the local authorities to decide a number of these issues for themselves. The hon. Gentleman should know that the total amount of Government support in his own county of Gwynedd—that is the total amount of all Government grants —is running at 76 per cent. That is an indication of the support that his area is receiving. I repeat that the totality of the needs element for the whole of Wales will be about the same as it was this year.

Sir A. Meyer: Is the right hon. and learned Gentleman aware that through the coming months many of us will be receiving furious letters from our constituents about rate increases? Is he further aware that many of us, even on the Opposition Benches, would be prepared to defend the Government's decision to reduce the rate support grant if only the Government would come clean and be frank and honest? If the right hon. and learned Gentleman continues to make the sort of reply that he has just made, the task of those who have to try to explain the facts of life to constituents will be rendered quite impossible.

Mr. Morris: I always listen carefully to what the hon. Gentleman has to say, and I trust that he will do me the same courtesy and read what I have just said about the totality of the assistance, the overall position in Wales, and the domestic element. I think that the hon. Gentleman used the word "honest". I hope that he is not suggesting in any way


that I have given a wrong impression. When he reads what I have said, I am sure that he will come to the conclusion that I have not given an unreasonable answer but have put the position fairly and squarely as I see it.

Mr. Wigley: Is the right hon. and learned Gentleman aware that many councils are now waiting with concern for the transport supplementary grant figures? Will the right hon. and learned Gentleman give us some assurance that the figure for Wales will be at least as high as last year and adjusted for inflation —namely, at least £25 million with at least £3 million for the county of Gwynedd?

Mr. Morris: My recollection and understanding is that Wales has done rather well in the TSG. I hope to announce the figures in the early part of next week.

Direct Labour

Mr. Grist: asked the Secretary of State for Wales what representations he has received on the subject of local authority direct labour building operations; and if he will make a statement.

Mr. Alec Jones: We have received representations both for and against the greater use of direct labour organisations from various sources, including local authorities, bodies representing the building and construction industry and individuals. It was announced in the Gracious Speech that legislation will be introduced this Session to remove unnecessary restrictions on the powers of local authorities to undertake construction work by direct labour.

Mr. Grist: Is the hon. Gentleman aware of the degree of hostility that the Government's proposals will evince among ratepayers, who will have to bear the burden of the losses of these uncompetitive departments, as well as among private builders and their employees? Will he give an undertaking that any extension of direct labour organisations will mean that the accounts for direct labour will be on the same basis as for commercial undertakings?

Mr. Alec Jones: I well understand the hon. Gentleman's hostility to this proposal. The Government will encourage

efficient direct labour organisations. It is also the Government's intention that full and fair comparisons between direct labour organisations and private industry will be possible.

Sir Raymond Gower: Will the hon. Gentleman bear in mind that although local authorities and direct labour undertakings have to find work for their employees, many smaller building undertakings have a much more formidable task? They also have staffs and employees. Will the hon. Gentleman take account of the needs of those employees as well as the needs of builders and other employers?

Mr. Alec Jones: The Government are concerned to protect the jobs of workers in the private enterprise construction industry as well as to protect the jobs of workers in direct labour organisations.

Mr. Wyn Roberts: Is the hon. Gentleman aware that much of the increase in local government staffing since reorganisation has been due to an intake of direct labour? Does he agree that an increase in direct labour will mean an additional burden for the ratepayer to bear?

Mr. Alec Jones: No, I do not accept that an increase in direct labour organisations means a direct increase in any burden on the ratepayer. I recommend that the hon. Gentleman reads the words of my right hon. Friend the Minister for Housing and Construction where he indicated that the criteria of the Bill would be tougher than recommended by the Chartered Institute of Public Finance and Accountants.

School Leavers (Literacy and Numeracy)

Mr. Michael Roberts: asked the Secretary of State for Wales whether he will consult employers about the standards of literacy and numeracy required of school leavers.

Mr. Barry Jones: The Confederation of British Industry is participating in the current round of informal discussions which I and my right hon. Friend the Secretary of State for Education and Science are holding. Employers in Wales will have ample opportunity to make known their views on standards of literacy and numeracy as on other aspects


of education as the national debate proceeds.

Mr. Roberts: I do not accept the unfounded and exaggerated criticisms of our schools, but does the hon. Gentleman agree that many employers regard the standard of school leavers as one of their major problems? In the interests of the children, will the hon. Gentleman ensure that employers are consulted widely not only through the CBI but through other employer organisations?

Mr. Barry Jones: I can give the assurance that everyone who is interested in the education service will be widely consulted.

Mr. Roderick: When my hon. Friend consults employers, will he ask them to define numeracy and literacy? Will he also ask others to define these terms? If he does so, he may find some interesting answers. We are told that standards of education have declined, but will my hon. Friend examine O-level and CSE Grade 1 results over the past 10 years? If they are taken as a measure, he will find that standards have improved.

Mr. Barry Jones: I agree with my hon. Friend's latter point. Standards in some directions have improved considerably. It would be difficult to make precise definitions. I say to my hon. Friend and everyone else that the Department is not being defensive. We admit that there are problems. However, the problems vary, and it is our aim to find out where they lie. We shall do so in collaboration with all those who take part in the education survey.

Mr. Nicholas Edwards: Is it not a fact that in Wales 30 per cent. of the children leave school without O-levels and CSEs, as against 20 per cent. in England? Does the hon. Gentleman know why that is so?

Mr. Barry Jones: I think that in this instance the hon. Gentleman has his statistics wrong. In fact, there is no valid statistical evidence to justify some of the wilder allegations now being made.

Mr. D. E. Thomas: Will the hon. Gentleman draw the attention of the CBI in Wales to the appallingly low figures for training and apprenticeships for young people in Wales, and press

it, in the interests of the standard of education of Welsh employees, to ensure that greater time is made available for day release courses for employees in Wales?

Mr. Barry Jones: I think that the point is well made. We are also undertaking research in Wales in respect of a further survey of reading standards both in English and in Welsh. Testing is likely to take place in 1978. It will cost about £18,000.

Mr. Grist: Is the hon. Gentleman aware that from figures supplied by him and his right hon. Friend in the Department of Education and Science it is nevertheless clear that the number of O-level passes in Wales represents a lower percentage than that in England? How does the hon. Gentleman explain that?

Mr. Barry Jones: The hon. Gentleman throws statistics across the Floor of the House. I can tell him that about one-fifth of our pupils are securing the former pass grade at O-level and a further 36 per cent. achieve other GCE and CSE grades.

North Wales (Communications)

Mr. Cledwyn Hughes: asked the Secretary of State for Wales what proposals he has for improving communications in North Wales.

Mr. Barry Jones: We propose to concentrate resources on the improvement of the A55 as soon as possible and will continue to support local authorities in maintaining a basic network of public transport services.

Mr. Hughes: Is my hon. Friend aware that good communications are absolutely crucial for industrial and commercial purposes? Will he say, first, when my right hon. and learned Friend is likely to pronounce on the prolonged public inquiry that took place on the Colcon route and, secondly, can he confirm that the work on the new road span over the Britannia Bridge is likely to continue on schedule?

Mr. Barry Jones: The work on the bridge is likely to continue on schedule. Work should begin next year and should take £10 million of resources over a period of years. I have to tell my right


hon. Friend that the inspector's report on the Colcon route has to be carefully considered. I am aware of the desire for an early decision. That makes it even more important to consider the report fully before we give such a decision.

Mr. Wigley: Will the hon. Gentleman at long last get a move on with the Caernarvon inner relief road scheme, the lack of which is causing untold embarrassment and dereliction in the town, and is creating a hideous sight in what is a major tourist centre? Is he aware that the people there are getting so fed up that they could not tolerate another summer under these conditions?

Mr. Barry Jones: The Department has already spent in excess of £1 million on this scheme. The hon. Member should be pleased to know that the construction of the Twthill school replacement is expected to start early in 1977.

Mr. Geraint Howells: Is the Minister aware—I am sure that he is—that it is not possible to travel from North Wales to South Wales by rail without crossing the border into England? What plans has he to improve rail and road communications between North and South Wales?

Mr. Barry Jones: My right hon. and learned Friend looks at this aspect of our affairs with keen devotion. So do I. If the hon. Member has any views or complaints about the train service, he might usefully in the first instance direct those views to the Transport Users Consultative Committee.

Sir A. Meyer: Will the hon. Gentleman care to read his brief for Question No. 5, which was not answered, and then ask himself whether the Government have got the balance right as between the construction of advance factories which stand empty to this day and roads which urgently require to be built?

Mr. Barry Jones: I would like to take the opportunity provided by that question to say that about 12 miles of dual carriageway have already been provided on the A.55, much of the funding going to the constituency of the hon. Member for Flint, West (Sir A. Meyer). We plan a further 45 miles, costing about £150 million.

Mr. Wyn Roberts: Will the Minister confirm that his right hon. and learned Friend has received the inspector's report on the Colcon inquiry? Will he also confirm that the report will be published, before or after the Secretary of State has taken a final decision?

Mr. Barry Jones: I can confirm that the report has been received. It is being studied.

Oral Answers to Questions — INDUSTRY

Profitability

Mr. Viggers: asked the Secretary of State for Industry if he is satisfied with the current rate of profitability of industrial companies.

The Minister of State, Department of Industry (Mr. Alan Williams): No. but I expect a substantial improvement as exports and output grow.

Mr. Viggers: Is the hon. Gentleman aware that inflation has distorted the profit figures of British companies and that proper inflation accounting will show that many sectors contain what can only be described as "convalescent ducks"? Will he and his colleagues divert the money and the energy that they are giving at the moment to the so-called regeneration of British industry and work instead with the Chancellor to create a climate in which British companies can be profitable and thus allow reinvestment to take place?

Mr. Williams: That question shows how utterly out of touch with the realities of the industrial situation the Opposition are. The industrial regeneration policy is welcomed by industry. It is needed by industry. Such things as the accelerated projects scheme and industry schemes are helping industry to modernise and become more profitable. I wish that the Opposition would find out what is going on.

Mr. Canavan: Does my hon. Friend agree that it is of the utmost importance that the profitability of industry is used for the good of the whole community? Does he further agree that the best way of doing this is by extending public ownership, and not reducing it? In view of this will he ask his right hon. Friends the Secretary of State for Energy and the


Prime Minister to deny categorically rumours, which are causing grave concern, to the effect that the Government are on the point of surrendering their public shares in British Petroleum just because of the demands of the vultures in the IMF?

Mr. Williams: I shall draw the comments of my hon. Friend to the attention of my right hon. Friends. We need profitable private and public sectors in industry, both viable and able to stand on their own feet.

Nationalised Industries (NEDO Report)

Mr. Nelson: asked the Secretary of State for Industry what is his policy regarding the conclusion of the recent NEDO report that the arm's-length relationship between Government and nationalised industries has failed; and if he will take action to promote greater consensus on and less interference in the management of those industries for which he is responsible.

The Minister of State, Department of Industry (Mr. Gerald Kaufman): The hon. Member should await the publication of the White Paper mentioned by my right hon. Friend the Prime Minister in reply to a Question by my hon. Friend the Member for Bedwellty (Mr. Kinnock) on 18th November.

Mr. Nelson: Does the hon. Gentleman agree that perhaps the time has come for a new approach to the relationship between Government and nationalised industries? In particular, is it not time to encourage greater autonomy in the industrial management and planning of those industries in return for greater accountability of their performance to Government and other interests?

Mr. Kaufman: I certainly believe it is appropriate for the Government to reexamine their relationship with publicly-owned industries, so that, on the one hand, they can operate effectively as commercial concerns and, on the other, the accountability to Parliament and to the owners of these industries shall be greater. We need to improve on the record of the Tory Party when it was in power.

Mr. Rooker: Will my hon. Friend ensure that a close relationship is maintained between the managers of the

nationalised industries and the Government? Far from there being less contact, does my hon. Friend not agree that there ought to be more? Will my hon. Friend confirm that he will not follow the reported comments of Lord Ryder, who apparently said that he will operate the National Enterprise Board only in conjunction with what the Conservative Party will approve? Will he also confirm that he will not operate that procedure in the context of the other nationalised industries?

Mr. Kaufman: I can assure my hon. Friend that the National Enterprise Board has been established to carry out the industrial policies of this Labour Government, as embodied in the manifesto from which the NEB was created. Since the Tory Party voted against the creation of the NEB, its views on the matter are irrelevant.

Civil Aircraft Projects

Mr. Warren: asked the Secretary of State for Industry if it remains his policy not to fund any new civil aircraft projects at the factories of BAC, HSA and Scottish Aviation whilst they remain in private ownership.

Mr. Tebbit: asked the Secretary of State for Industry if it remains his determination to refuse launching aid to civil aircraft projects advanced by HSA or BAC whilst those companies remain in the private sector of the economy.

Mr. Kaufman: No such policy has been announced.

Mr. Warren: With respect to the Minister, may I say that his reply is rather at variance with that which we heard in the debate? Is he aware that I would like to be sure that there is no refusal?

Mr. Kaufman: Since we have had no approaches, there could be no refusal. Where I have had approaches, in the case of the HS146 and the BAC 1–11, I made available £6½ million of Government money, which the Opposition disliked so much that they shouted me down when I announced it.

Mr. Tebbit: Does the hon. Member not recall the rather hysterical reply which he made in the last of our debates


last Session on the Aircraft and Shipbuilding Industries Bill? Does he not understand that this has been widely interpreted, inside and outside the House, as the Minister saying that under no circumstances would he give Government support to any major new civil project until the industry was nationalised? Is that his policy?

Mr. Kaufman: What I have made clear is that the days of the begging bowl have come to an end for the aircraft and shipbuilding industries in this country. We seek to place these industries into public ownership so that the large sums of money made available by the Bill can be used for new projects in the aircraft industry and to help in the shipbuilding and ship repairing industries. The hon. Gentleman had better make up his mind. If he is an exponent of private enterprise he ought to tell the House whether he believes that private enterprise should be helped out with a Government contribution to the begging bowl.

Mr. Buchan: Is my hon. Friend aware that at Scottish Aviation there is complete unanimity in all sections of the industry that the only hope for survival is public ownership? Will my hon. Friend suggest to the Tory Party that the best thing it can do in these circumstances is to tell its friends in the House of Lords that it is time for them, too, to understand that?

Mr. Kaufman: It is well known that the long-term future of Scottish Aviation depends upon the rapid enactment of the Aircraft and Shipbuilding Industries Bill. Of course, the Tory Party does not care about these things at all.

Mr. Tebbit: As the Minister uses Question Time to ask questions of the Opposition rather than to answer them, may I ask him whether he is aware that there is no incompatibility between a healthy free enterprise system making sufficient profits—

Mr. Russell Kerr: On a point of order, Mr. Speaker. I should have thought that the hon. Member for Chingford (Mr. Tebbit) was asking a second supplementary question. Is that in order, and is it desirable, anyway?

Mr. Speaker: It is well within the discretion of the Chair.

Mr. Tebbit: Is the Minister aware that there is no incompatibility between a healthy free enterprise system making adequate profits and co-operating with the Government in launching major projects? That is done in every country in the world.

Mr. Kaufman: The hon. Gentleman places a curious interpretation on the word "co-operation". By "co-operation", he means Government funding. It is well known to us that the Tory Party believes that the aircraft industry should operate on the basis of private profit produced by Government money. We believe that the industry should be in public ownership, so that the taxpayer shall have a proper return from his investment.

Oral Answers to Questions — CIVIL SERVICE

Pay Research Unit

Mr. Tim Renton: asked the Minister for the Civil Service whether he has plans to reactivate the Civil Service Pay Research Unit.

The Minister of State, Civil Service Department (Mr. Charles R. Morris): As I explained to the hon. Member on 2nd August, the unit, now with a substantially reduced complement, is engaged on certain duties of a care and maintenance nature. There are at present no plans to reactivate the work the unit undertook before the suspension of pay research in the Civil Service. This will depend on the future development of national pay policy.

Mr. Renton: I find that a very unsatisfactory reply. Is not the Minister deeply disturbed at the prospect of 1977 being yet another year in which Civil Service pensions will rise by between 15 per cent. and 20 per cent. while the pay of people in work will rise by only 3 per cent.? Does he not think that the time has come when, as with private sector occupational pensions, a limit must be placed on the extent to which Civil Service pensions may rise each year?

Mr. Morris: I should perhaps explain to the hon. Gentleman that the Pay Research Unit establishes the facts about salaries, pensions and conditions in the private sector and that it is on those facts


that negotiations between the unions and the Government take place.

Blackpool

Mr. Blaker: asked the Minister for the Civil Service whether it is still the intention of the Government that Civil Service jobs shall be dispersed to the Blackpool area; and how many jobs are involved.

Mr. Charles R. Morris: Yes. The dispersal from London of 980 posts of the Department of Health and Social Security is proceeding. Over 140 posts have been moved so far and the remainder are expected to move by 1979–80.

Mr. Blaker: I welcome that reply. Will the Minister confirm that the arguments for this move have not changed in any way since the Government announced their decision in 1974?

Mr. Morris: I assure the hon. Gentleman that the Government remain firmly committed to the policy arising from the Hardman Committee's recommendations.

Mr. Michael McGuire: Is my hon. Friend aware that, whatever case can be made out for Blackpool, an overwhelming case can be made out for dispersing some of the Government posts not yet allocated to areas such as Skelmersdale? Will my hon. Friend confirm that consideration is being given to this matter? There are some outstandingly large departments still to be transferred, and as Skelmersdale is greatly in need I hope that he will confirm that we shall get one.

Mr. Morris: I have noted the determined manner in which my hon. Friend has put forward the claim of Skelmersdale for the dispersal of Civil Service departments. If my hon. Friend looks at the Government's policy, not only on dispersing Civil Service departments from London but on establishing new Civil Service departments, he will see that we are determined to locate them in assisted areas throughout the country such as Skelmersdale.

Mr. David Price: In addition to bearing in mind the regional considerations, will the hon. Gentleman bear in mind that Civil Service departments must serve the public? If they are too far from the main concentrations of people, they may fail to do their job—for example,

having the public sector department of the Inland Revenue in Wales and most of the people affected by it in London?

Mr. Morris: The Civil Service will bear in mind its obligation to serve the public.

South Yorkshire

Mr. Hooley: asked the Minister for the Civil Service what progress is being made with the dispersal of Government Departments to South Yorkshire and particularly to Sheffield.

Mr. Charles R. Morris: As my hon. Friend knows, the headquarters of the Manpower Services Commission, together with the headquarters of the Training Services Agency and the Employment Service Agency, is to be located at Sheffield. As a result, some 1,500 posts will be established there. I understand that a small group will be moved in 1977 and that it is expected the main dispersal will begin in 1979.

Mr. Hooley: I welcome the information given in that answer. As the very important Safety in Mines Research Establishment is already located in Sheffield, what are the prospects of moving a section of the Health and Safety Commission to Sheffield?

Mr. Morris: I shall bring that view to the attention of my right hon. Friend the Secretary of State for Employment.

Mr. English: Is there any co-ordination? As the Trent Regional Health Authority, which was supposed to have moved to a location near Nottingham and Derby, was not moved, why is extra consideration being given to Sheffield?

Mr. Morris: I can assure my hon. Friend that it is not a question of preferring one area to another. The decision on the matter to which he has referred is primarily for my right hon. Friend the Secretary of State for Social Services.

Mr. Rooker: As these jobs are winging their way to Yorkshire, Sheffield and Blackpool, may I ask my hon. Friend to drop a few off in the West Midlands —an area which has never gained from the dispersal of civil servants, apart from the prospect held out by the ill-fated wealth tax Bill? If we do not have a wealth tax, we shall have no jobs.

Mr. Morris: My hon. Friend has identified a fact of life about the dispersal of the Civil Service The Government are committed, under the Hardman Committee's recommendations, to dispersing 31,000 Civil Service jobs from London and the South-East to assisted areas. At the time that the decisions were announced, Birmingham was not an assisted area.

Mr. Rost: How many extra civil servants must be employed to organise all this dispersal?

Mr. Morris: I assure the hon. Gentleman that the organisation of the dispersal of the Civil Service is well within the competence and present manpower ceilings of the Civil Service Department.

DEVOLUTION (REPRESENTATIONS)

Mr. Canavan: asked the Lord President of the Council how many representations he has received over the past six months on the subject of the Government's proposals on devolution; and if he will make a statement.

The Minister of State, Privy Council Office (Mr. John Smith): 39, Sir.

Mr. Canavan: Will my hon. Friend make a special appeal to those Tories who are thinking about defying their party's three-line Whip against the devolution Bill that they should follow their own consciences in this matter, and also the wishes of the vast majority of Scottish people, by voting for the Bill instead of meekly submitting to the diktats of that great champion of individual liberty, the iron lady with the wooden head?

Mr. Smith: Hon. Members opposite will have listened to what my hon. Friend said, but obviously there are difficulties among them on the question of devolution, which may be epitomised by the fact that no Opposition Front Bench spokesman is present for these Questions.

Mr. Gordon Wilson: In view of the new-found interest in democratic expression of opinion among Government supporters, will the hon. Gentleman say whether he, too, intends to impose a three-line Whip containing a conscience clause? Is he aware that there is great

disappointment that the Bill which has just been published does not go further than the abysmal earlier White Papers?

Mr. Smith: The first part of the hon. Gentleman's supplementary question is a matter for my right hon. Friend the Patronage Secretary. On the second part, no one expects people like nationalists, who are dedicated to breaking up the United Kingdom, to have any sympathy for proposals which not only give genuine devolution to Scotland and Wales but will in the end strengthen the unity of the United Kingdom.

ENGLISH REGIONS

Mr. Tim Renton: asked the Lord President of the Council what plans he has to introduce legislation for devolution to the English regions.

Mr. John Smith: A consultative document will be published on 9th December seeking views on whether there is a need for change in Government arrangements in England, and what form this might take.

Mr. Renton: Will the hon. Gentleman ask the Lord President of the Council to assure us that he will find time for the White Paper to be debated in the House during the debates on the devolution Bill? If the Minister accepts the principle that for the United Kingdom to remain united each part of the kingdom must be treated equally, is it not very important that they should be debated simultaneously?

Mr. Smith: The consultative document will be available before next week's debate on the Scotland and Wales Bill. I have no doubt that it will be in order for hon. Members then to refer to the consultative document and any matter affecting England which our proposals throw up. I am sure that my right hon. Friend the Leader of the House will take into account the hon. Gentleman's representations about having a separate debate.

Mr. John Ellis: Does not my hon. Friend realise that we are getting into a devil of a mess with all this legislation? Looming over us is the question of direct elections to the European Parliament by 1978. How will we find time for all these matters? Perhaps in the interests


of sanity we should at least drop that proposal, for I am becoming increasingly sure that one of the reasons for manifestations of nationalism is the fact that people are resorting to this form of protest because they are overwhelmed by Governments of all shapes and sizes introducing legislation on all these matters.

Mr. Smith: My hon. Friend has raised matters which are not within my responsibility. The devolution proposals are, in essence, very much a way of strengthening the United Kingdom, not of appeasing nationalists.

"MORNING STAR" (GOVERNMENT ADVERTISING)

Mr. Blaker: asked the Lord President of the Council why the Government have decided to place advertising with theMorning Starnewspaper.

The Parliamentary Secretary to the Privy Council Office (Mr. William Price): In the past the Morning Star was not considered for Government advertising because it did not produce independently audited circulation figures upon which its cost effectiveness could be judged. It has now done so and will in future be considered in the normal way and on the same basis as every other national newspaper.

Mr. Blaker: Is it not curious that the Government have decided to place an advertisement in the Morning Star, as more than one-third of its circulation is sold abroad as a form of concealed subsidy for the Communist Party of Great Britain?

Mr. Price: It is not the only newspaper that sells abroad. What the hon. Gentleman and his hon. Friends are really arguing is that Government advertising should be withheld from those newspapers whose policies we dislike. If the Government were to operate such a policy there would be some suicidal management in Fleet Street tonight, led by the Sun, the Daily Express, the Daily Mail, the Daily Telegraph, and so on.

Mr. Tapsell: Is the hon. Gentleman saying that, if the National Front were to produce a daily newspaper with audited figures, the Government would advertise in that newspaper also?

Mr. Price: The Government advertise in the Daily Telegraph. There is no reason why any morning newspaper that supplies the figures should not be considered. I quote what was said in the House on an earlier occasion:
Government advertising has always been placed wholly on a commercial basis. The Morning Star will be considered for such advertising when, like every other national newspaper, it provides independently certified circulation figures and analysis of readership." —[Official Report, 24th March 1971; Vol. 814, c. 137–8.]
That was said by the right hon. Member for Wanstead and Woodford (Mr. Jenkin) when he was a Treasury Minister.

DEVOLUTION (REFERENDUM)

Mr. Adley: asked the Lord President of the Council at what stage of the legislative process he intends to consider the introduction of a referendum on devolution.

Mr. John Smith: The Scotland and Wales Bill is now before Parliament. The Government could not accept proposals for referenda which would delay its passage, but if proposals are made by the House for referenda at a later stage the Government will give them careful consideration.

Mr. Adley: Is the Minister of State aware that many of those who do not believe that Scotland belongs to England nevertheless believe that the Government's proposals are motivated more by political than by constitutional considerations? Does he accept that there would be a deal more sympathy for the Government's proposals if they genuinely sought to discover the views of the people of Scotland and Wales on the fundamental question of a desire for devolution before presenting legislation to the House backed merely by phrases such as those uttered by his hon. Friend the Member for West Stirlingshire (Mr. Canavan) just now?

Mr. Smith: Obviously, a question of judgment is involved in terms of what the people of Scotland and Wales want. Our view is that the people of Scotland and Wales want these proposals, and we were elected on a manifesto which included them.

Mr. Abse: Is my hon. Friend aware that there is on the Order Paper a reasoned amendment calling for a referendum at this stage in Scotland and Wales, so that the people of Wales, in particular, can have the opportunity of registering a view that is already reflected in opinion polls, namely, that they want nothing to do with the Bill? Therefore, if the Minister really wants to enable the people of Wales to say what they want, at this stage, before it is too late, will he make it quite clear that the Government are ready to allow a free vote in the House so that Members can vote and decide whether the Bill should or should not include a clause dealing with a referendum?

Mr. Smith: The latter part of my hon. Friend's question is not for me. The earlier part of his question is concerned with whether the proposals are desired in Scotland and Wales. The party of which both my hon. Friend and I are members fought an election on a manifesto that contained those proposals, and the Government see no reason to depart from them.

Mr. George Gardiner: Does the Minister's open mind on the question of referenda in connection with devolution extend to the English?

Mr. Smith: The Government will consider proposals at a later stage. All these matters can be aired then.

Mrs. Bain: Will the Minister of State clarify whether hon. Members such as the hon. Members for West Lothian (Mr. Dalyell) and Pontypool (Mr. Abse) were aware of the manifesto on which they fought the last election? Does he accept that a growing number of people in Scotland want independence as a logical step, and would brook no delay at this stage if a referendum were to be held to stop an Assembly from being set up? Will he guarantee that if there is a referendum we shall have separate questions for each constitutent part of the United Kingdom?

Mr. Smith: Questions of detail about referenda are better left until we consider the matter. Talking about manifesto commitments, I wonder whether the hon. Lady will confirm whether people who voted for the Scottish National Party knew that they would be in alliance with the House of Lords to frustrate the

Aircraft and Shipbuilding Industries Bill and cause great difficulties for the working people of Scotland.

Mr. Buchan: Is it not curious that the Scottish National Party, which claims to speak for the people of Scotland, is terrified of the idea of an honest referendum? Is my hon. Friend aware that many of us believe that we gave certain pledges in the manifesto and that any referendum —I want one—should be held after the Bill is through, so that we know what is being voted for? Thirdly, does he agree that for Scotland the referendum must be on two questions—first, on the question of devolution and, secondly, on the question of independence, so that we can test the pretensions of the Scottish National Party?

Mr. Smith: I have carefully noted what my hon. Friend said. He has expounded this view carefully before. I cannot go further than saying that the Government will consider these proposals at a later stage.

Mr. Marten: Does the Minister of State agree that devolution includes not only devolution downwards to Scotland and Wales but also upwards to the European Parliament? If we are to have a referendum on devolution downwards, may we equally have one on devolution upwards to the European Parliament?

Mr. Smith: The hon. Gentleman will correct me if I am wrong, but I have a faint recollection that we had a referendum on that matter some time ago. I am sure that he will read the Bill with care. Perhaps it will satisfy him a little to know that there are no proposals in the Bill for devolution upwards.

SCOTTISH AND WELSH ASSEMBLIES (ELECTIONS)

Mr. Wigley: asked the Lord President of the Council if he will ensure that the legislation for devolution includes provision for elections to the Assemblies by a proportional representation method.

Mr. John Smith: No, Sir.

Mr. Wigley: Is the Minister of State aware that proportional representation was not only the unanimous recommendation of the Kilbrandon Committee but is


also the subject of Early-Day Motion No. 26, which has drawn signatories from all parties in the House? Will he say whether the Government have an equally open mind to the possibility of proportional representation in the Welsh and Scottish Assemblies as they have to a referendum?

Mr. Smith: The Government's view is that our present electoral system as it is used for the House of Commons and for local government is simple to operate and easily understood, and that it provides for clear and direct accountability of the Member to his constituents. Any change in our electoral arrangement would have to take account of the consequences for the House of Commons and local government, as well as for the proposed Scottish Assembly.

Mr. Rifkind: Is the Minister aware that the Government are proposing a Scottish Assembly with 150 Members, which would be almost double the membership of the New Zealand Parliament which covers all the functions of government in New Zealand? Will the Government reconsider the size of the Scottish Assembly, so that we may have one that will not create unnecessary extra membership and unnecessary extra cost for the electorate?

Mr. Smith: The Government gave very careful thought to the size of the Assembly. However, the Government's proposals involve a real transfer of power to the Assembly and it is therefore important that there is an adequate number of Members from which an Administration and an effective Opposition can be drawn. International comparisons are often misleading. The hon. Member should think much more carefully about strengthening the Conservative Party's proposals, which everybody realises are quite insufficient.

Mr. Heffer: Does my hon. Friend agree that if we had a system of proportional representation it could lead to a position in which the leaders of parties would have

too much say in the selection of candidates, and it would not be left to local committees? In this way people such as myself and many Opposition Members would never get into the House of Commons.

Mr. Smith: My hon. Friend raises a very important matter. This indicates how careful we must be before making any changes.

Mr. David Price: Is the Minister of State aware that any proposals for legislative Assemblies under the Government's Bill is not devolution in a meaningful sense, because they do not deal with Supply or taxation? Any proposals for devolution which do not deal with these key crunch issues are a charade.

Mr. Smith: If I understand the hon. Gentleman correctly, he says that the Bill does not go far enough. I hope that he will reflect on that in the Division Lobbies on the Second Reading of the Bill.
We are prepared to look at proposals for extra revenue-raising powers if they can pass the test of practicability and fairness. If the hon. Gentleman wishes to put them forward at the Committee stage we shall certainly give them careful consideration.

Mrs. Bain: Is the Minister aware that, unless we have proportional representation in the Scottish Assembly, his own party is unlikely to have very much representation in it?

Mr. Smith: What seems to be the flirting of the Scottish National Party with proportional representation portrays a lack of confidence in its ability to win elections under the present system.

NEW MEMBER

The following Member took and subscribed the Oath: Robert Vidal Rhodes James, Esq., for Cambridge.

Orders of the Day — NATIONAL INSURANCE SURCHARGE BILL

Order for Second Reading read.

3.31 p.m.

Mr. David Howell: On a point of order, Mr. Speaker. I wonder whether the House could have your guidance. You may be aware—you probably are—that the Ways and Means Resolution which we have debated, and which governs the Bill, has been so drawn as virtually to prevent the putting down of any amendments of the kind which would reflect the interests and concerns of those parties most worried by the Bill—in particular, the Churches and charities.
It is impossible, because of the way in which it has been drawn, to put down amendments to the Bill to reflect the particular concerns of particular classes of people who would pay, as employers, national insurance contributions. Is there any way in which the House can be protected from this kind of procedural device, which rules out effective debate which can reflect the interests of people genuinely concerned and who may be severely damaged by the Bill?

Mr. Speaker: The hon. Gentleman knows, of course, that Second Reading will cover a wide field, but I fear that I cannot help him on the main part of his question. It is a matter for the Chairman of Committees. But it is right that the hon. Member should raise it on the Floor of the House. I am afraid that the answer is that I have no power at all to intervene.

3.33 p.m.

The Financial Secretary to the Treasury (Mr. Robert Sheldon): I beg to move, That the Bill be now read a Second time.
The Bill that is before the House this afternoon validates the proposal made by my right hon. Friend the Chancellor of the Exchequer on 22nd July 1976 to impose a surcharge of two percentage points on the employers' national insurance contribution. My right hon. Friend made it quite clear at the time that

this measure was a taxation measure and that the revenue would accrue to the Exchequer.
Perhaps at this stage I might remind the House of the reasons for my right hon. Friend's decision, which he explained when he made his statement to the House at that time. The Chancellor began by explaining that the size of the Budget deficit in the current financial year, although raising problems of financing, was advantageous at a time of recession, as it enabled us to keep unemployment lower than it would otherwise have been.
However, the public sector borrowing requirement had to be reduced for 1977–78, and it was his view that unless our borrowing requirement fell steadily over the next three years the financing of the public sector could pre-empt private savings, which productive industry was likely to require on a substantial scale to finance stockbuilding and investment. It would also lead to an excessive growth of the money supply, which would refuel inflation.
Then the Chancellor went on to announce public expenditure cuts which, it was estimated, would reduce the public sector borrowing requirement by about £800 million. He followed this in the same statement by announcing the National Insurance Surcharge, which he estimated would reduce the PSBR by about £700 million.
That is the background against which the House must look at the Bill. However, there was a further occasion on which the measures were discussed, including, of course, the National Insurance Surcharge. The House debated the July measures at considerable length on 2nd August, just before the Summer Recess.
During that August debate the Government could hardly be accused of reticence over the National Insurance Surcharge. The Chancellor devoted a considerable part of his speech to an exposition of the reasons, the working and the likely economic effects of the surcharge, including the effects on unemployment as far as he was able to judge them.
That was four months ago. Since then my right hon. Friend has received representations about the new tax from


employers' organisations and private individuals. It has provoked a measure of public debate. Although Opposition Members have not referred to it much in their comments on the state of the economy, I will concede that when they have mentioned it they have not failed to express their dislike of it.
Against this background, I find it a little surprising that the Opposition are behaving over the Bill and its handling as if the Government were springing a complete surprise. It is true that the process of the Bill through the House is rather rapid, for very straightforward, practical reasons. The measure, as its name denotes, is a surcharge on the national insurance contribution, and it uses the machinery employed to raise that contribution.
In order, therefore, to avoid widespread inconvenience for employers who have to operate the system, it was felt that the introduction of the surcharge ought not to affect the normal programme for the administration of changes in the national insurance contribution itself. The late opening of the Session has meant that it was difficult to give more time to the Bill without prejudicing that programme.
The Bill provides that the surcharge will be paid by employers from 6th April next year on the same basis as that on which they pay national insurance contributions in respect of their employees. It will apply, that it to say, to earnings under £95 a week. It will not apply in respect of those earning less than £13 a week, because no national insurance contribution is payable by them.
While the tax fits into the national insurance system, it is, however, in no way part of it. The receipts will go straight into the Consolidated Fund, together with the proceeds of all other taxes, and because the tax uses the machinery of national insurance contributions, it will be exceptionally cheap to collect. This was referred to in the Ways and Means Resolution. It will throw no extra administrative burden on employers, and no additional civil servants will be needed to operate it.

Mr. David Howell: The hon. Gentleman is right in saying that the proposal does not come as a surprise, since it was put forward on 22nd July. But what is a surprise, and has been greeted with

dismay, is that the Ways and Means Resolution should literally prevent any class of employer—notably those employing people in registered charities—from putting forward amendments, let alone having those amendments accepted, to allow them to be excused this additional surcharge.
As the surcharge has nothing to do with national insurance and goes straight into the Exchequer on a separate basis, is not this a very strong reason for giving much more thought to the whole proposal before it is rushed through?

Mr. Sheldon: I think that what was generally understood was that this would be a broad-ranging tax. Indeed, my right hon. Friend the Chancellor of the Exchequer has said as much. I might remind the hon. Gentleman that charities pay indirect and direct taxes, and that this has been the case for many years. But I concede the point that the hon. Gentleman makes, particularly concerning the Churches. I understand that the Archbishop of Canterbury has arranged to see the Prime Minister on this matter. We are always prepared to listen to representations and to see how far they are justified and how they can be taken into account.

Mr. Ian Stewart: Is it not totally out of proportion for it to be necessary for the Archbishop of Canterbury to make representations to the Prime Minister about adjustments to a tax Bill which should be dealt with in the normal way by adequate time being available for the tabling of amendments to it?

Mr. Sheldon: I am sorry that this effect of the tax changes was not generally understood, but clearly these are matters which can be taken into account, and representations are always welcome, from whatever source, even those less exalted than the Archbishop of Canterbury.

Mr. George Cunningham: I thought it was the case that ministers of the Church were still self-employed for the purposes of national insurance. I thought that an exception had been made in their case and a regulation made on the ground that the Church could not afford to pay the extra amount that would have been payable if the ministers were employees. If


that is the case—and perhaps the point can be cleared up later—would it not be the case that ministers of the Church would attract no additional payments as a result of this Bill?

Mr. Sheldon: There is a change in prospect which will affect the position, as I understand it, and the consequence of that might be that they could be taxed at some future time. But others are concerned, so the problem is a little more complex, although I take my hon. Friend's point.
As I have said, this will throw no extra administrative burden on the employers and no additional civil servants will be needed. I consider that to be a valuable additional objective of the surcharge. I think that the Opposition ought to be concerned about that aspect because of their general anxiety about the size of the Civil Service, which I share, and their desire to avoid adding to industry the burden of more forms to fill in.
It would perhaps be convenient if I explained at this point that although local authorities will pay the surcharge, it will be taken into account for rate support grant purposes. I should also make clear that the surcharge will be deductible against corporation tax, just as the employers' national insurance contribution is deductible. We must expect that, over a period, the bulk of the surcharge will be passed on into prices. To that extent, profits, taking the economy as a whole, will be largely unaffected As the House is also aware, the surcharge will be an allowable cost under the Price Code, in the terms in which such costs are defined in the code.
Although the rate of the national insurance surcharge is comparatively low, the comprehensive nature of its base makes it revenue-rich, and therefore well suited to its public sector borrowing requirement—reducing objective. The revenue yield in 1977–78 is estimated at £950 million, and the reduction in the PSBR in that year at £700 million.
Why do we need this substantial increase in revenue? The answer is that we must reduce the public sector borrowing requirement from the levels it would otherwise reach. This is, however, not a policy of mindless deflation. We still expect the PSBR to be large in 1977–78

because the level of economic activity is not as high as we would like it to be. But we must have a PSBR that is financable. An excessive PSBR reflects a structural imbalance in the economy. It is linked with a large external deficit and with a severe problem of internal financing. An excessive PSBR can face us with the unpalatable choice between high interest rates and printing money. It is for these reasons that it is part of the Goverment's strategy to reduce the public sector borrowing requirement progressively.

Mr. Alan Clark: Is not this a rather large proportion just to disappear in lag? The hon. Gentleman says that the yield is £950 million but the amount by which the public sector borrowing requirement will be reduced is £700 million. What happens to the £250 million?

Mr. Sheldon: The hon. Gentleman will know the difference between revenue and the public sector borrowing requirement. I shall go into detail of how the figures are arrived at, and I hope that the hon. Gentleman will be satisfied. If not, I will gladly give way to him again.
The reason for the needs to reduce the public sector borrowing requirement is a reflection of the need to eliminate the external deficit and to enable us, without inflation and without intolerable interest rates, to provide for the borrowing needs both of the public sector and of industry. It is essential to the industrial strategy, which is, of course, a policy for the medium and long term, that industry should be able to borrow for investment and for working capital at tolerable interest rates. To assure the future of the economy and of high employment in it, we have to deal with the external deficit and we have to give priority to adequate resources for industry.
We believe that the reduction in the PSBR will have to be achieved over a period by a combination of public expenditure and taxation changes. The structural change will be the result not of one Budget or one package but of a succession of changes at different times. We are now discussing an important tax element in that process. It is a large element and I must tell the House that


it is essential to the whole programme and strategy.
I turn now to the main problem as expressed in the debate on the Ways and Means Resolution—unemployment and the possible effect of the surcharge on it. The debate last week demonstrated the House's concern, and lion. Members, notably my hon. Friends behind me, pressed me to indicate precisely what we expect this effect to be.
The difficulty about responding to this in an open and constructive manner as possible is that to take one measure in isolation and to look at its possible effects on employment and on other critical economic variables is to risk producing a highly misleading picture. As I have just been arguing, the reduction of the PSBR, to which this new tax contributes importantly, is central to the Government's economic policy. If that policy were to fail, the prospects for the economy would be vastly poorer, and with it, of course, the prospects for employment.
It is not, moreover, realistic to compare the effects of this surcharge with the effects of doing nothing at all. That is the wrong kind of comparison to make, because, if we were to do nothing at all, the policy itself would be bound to fail. The only real comparison we can usefully make in discussing the different levels of employment as a result of introducing this measure, or not doing so, is with alternative methods of reducing the public sector borrowing requirement. There is no denying—and I have never tried to do so—that the surcharge, like any tax increase, will of itself cause demand in the economy to fall, and that of itself, again, will have some effect on employment. We have never sought to pretend otherwise.
But I emphasise that the surcharge is not a tax on employment as such. It is true that the tax base is earnings from employment. But I believe that the tax will be mainly passed on in prices, and it is principally because of this rise in prices that the tax is bound, taken in isolation, to induce some fall in demand. I do not welcome that any more than I welcome any other of the employment effects which may be associated with tax increases or reductions in public expenditure. It is much

more likely, however, that with this tax the effects will be contained, since they are thinly spread over the whole economy and not concentrated in a highly selective way on particular industries which would otherwise bear the full brunt of any tax changes.
The House, while conceding this, may nevertheless feel that a broad quantitative estimate of the possible effect of the surcharge on the level of unemployment would be helpful. This point was put to me last week by my hon. Friend the Member for South Ayrshire (Mr. Sillars). I have already suggested that the adverse effect by the fourth quarter following the introduction of the surcharge might be about 10,000. I know of no other intellectually respectable method of arriving at an estimate.
The decision to proceed with the National Insurance Surcharge in the face of the overriding need to bring down the PSBR was not taken without careful consideration of the alternative courses. Our critics delude themselves if they think that these would be painless or less painful than the tax we are proposing.

Mr. James Sillars: Could the Financial Secretary tell us some of the alternatives which he considered and rejected?

Mr. Sheldon: I will come to that because there are alternatives, and we shall need to consider them when the hon. Member for St. Ives (Mr. Nott) deals with this point. We would like to hear him put an amount on public expenditure cuts. I would be grateful if he would be helpful about this when he intervenes.
The first option that would have been open to us was to do nothing at all. However, I find it impossible to advocate this. The second option was to make a choice between public expenditure cuts or tax increases or a combination of the two.
With tax increases, we could, of course, have gone for VAT. To produce the same effect on the PSBR as we estimate we shall achieve through this National Insurance Surcharge, we should have needed to raise the standard rate of VAT by 3½ percentage points to 11½ per cent. We calculate that this would increase unemployment, beyond what it


would otherwise be, by some 50,000 by the fourth quarter following the introduction of the tax—that is, by five times as much as the increase we foresee as a result of the surcharge. Moreover, the use of VAT in this way would produce a larger and more immediate effect on the Retail Price Index than will the surcharge. The estimated RPI increase by the fourth quarter after introduction would be 1·8 per cent. in the case of VAT, but in the case of the surcharge it will be about half that, namely 0·9 per cent.

Mr. David Mitchell: In condemning a VAT increase in this case is the Financial Secretary saying that there is no increase in the pipeline already?

Mr. Sheldon: The hon. Member knows better than to ask questions of that kind. He knows that these matters are before the House as a result of measures announced last July. I am dealing with them today.
The difference between the effect of VAT and the effect of the surcharge on the RPI is because the surcharge is a broadly-based, thinly-spread tax, whereas VAT relates almost entirely to consumers' expenditure, of which it covers no more than about one-half.

Mr. A. P. Costain: Does the Minister agree that this type of taxation adds to the cost of exports, whereas VAT applies only to the home market?

Mr. Sheldon: The surcharge applies to all employers, I agree.
A further disadvantage of VAT, compared with the surcharge, is that its price-raising impact is felt more quickly than the corresponding effect under the surcharge. By the autumn 1977 virtually the whole of the effect of VAT would already be through, but in the case of the surcharge the effect as we estimate it should be no more than about one-half of 1 per cent.
This difference is very important for the social contract. The TUC is holding firmly to its bargain on the current round of pay policy, and both the TUC and the Government are determined to avoid a free-for-all on pay after July next. Where a choice is open to us, it is right that we should make the choice which does not make their task more difficult.
If VAT is ruled out as an appropriate option, what are the other taxation alternatives? We could, of course, operate on the excise duties on oil, alcoholic drinks, and tobacco, but to produce the necessary revenue-PSBR effect would require very large increases indeed in the duty rates, and these would carry big RPI effects.
Another possibility in principle is Corporation Tax, but our room for manoeuvre here is very limited in practice. Company profits have been depressed by the sharp recession through which the economy has been passing, and are only just beginning to recover. The House will not need me to dwell on the implications of any sharp increase in profits taxation for the rate of productive investment and for the job creation that we expect to flow from the additional investment in prospect, on present policies, the period immediately ahead.
There remains income tax, but I imagine that no responsible person would dissent from the words uttered on this subject by my right hon. Friend the Chancellor, and what he said about the problems of income tax at the levels operating at present, particularly in so far as it affects the low paid, and the problems of the poverty trap. There are other problems as well.
The other alternative for reducing the PSBR is further public expenditure cuts. The Opposition always say that it is easier to cut public expenditure than anything else. Having stated this again and again and again, the right hon. and learned Member for Surrey, East (Sir G. Howe) on 26th November referred to this once more, when he mentioned the need for a massive transfer of resources from the public to the private sector and called for a reduction in direct taxation. The policy of the Opposition is clear. It rests on the assumption that massive cuts in public expenditure will lead to massive transfers from public to private expenditure and investment.
This hope, which they have repeatedly expressed, that public expenditure cuts will lead to increased private investment is no more than a hope, and hope is an insufficient basis on which to plan. By cutting public expenditure and assuming that this will lead automatically to an increase in private investment, one is


falling into precisely the same error as did the right hon. Member for Sidcup (Mr. Heath). He produced tax reductions, a climate for industrial investment, the Industrial Relations Act, which he believed industry wanted, and a flexible exchange rate. When he had done all that, he found that there was still insufficient investment, so he resorted to complaints and exhortations one after the other. The truth is that reductions in public expenditure do not automatically lead to increased private expenditure and investment. This gap between the two leads to higher and higher levels of unemployment.

Mr. Cecil Parkinson: The Financial Secretary said that hope was no basis for an economic policy. But the whole of his Department's economic policy in the last two years has been based on the hope of a world boom. The whole of the Chancellor's strategy from 1975 onwards has been based on the policy that there shall be no cuts in public expenditure because of advantages expected from the forthcoming world boom. How can he say that hope is no basis for an economic policy when his policy is based on the hope of a world boom?

Mr. Sheldon: The hon. Members fails to understand the realities of the situation. The reality is that clearly any growth in the economy has to come from a growth of exports and sales abroad. It would have come with a world boom that much earlier. If the hon. Member is saying that our economic policy is based only on the hope of a world boom, I disagree. It has only delayed the way in which we expect the economy to operate. When the right hon. Member for Sidcup found that the investment he sought was not forthcoming, he had come to the end of the realistic part of his Government's economic policy.
We are never sure what the Conservatives mean when they apply the word "massive" to public expenditure cuts. But let us leave the word massive to speak for itself. If there were now a Conservative Government they would fall between the two stools of massive reductions in public expenditure either without an improvement in investment or with a consequential increase in unemployment.
We on the Labour benches must, therefore, not allow the Tory Party to conduct its savage experiments on the body of British industry and those who work in industry. The truth is that all tax instruments suffer from disadvantages. It is perhaps a rather unenviable task to have to choose between them and to present the conclusions to the House.

Mr. Sillars: My hon. Friend has not given us a calculation of the advantage to the public sector borrowing requirement of reducing unemployment by 500,000. How much does it cost to have 1·3 million unemployed, and what savings would there be for the PSBR if that figure were reduced by 500,000?

Mr. Sheldon: I am not sure that I can help my hon. Friend. I sought to deal with his question about the impact of the Bill on unemployment levels. I have sought to produce the most suitable figures for him. I am sorry that I cannot go further. I have given him the best figures I have been able to produce. They represent the position that we expect to develop.

Mr. R. B. Cant: Did the Chancellor not say that a one point fall in the unemployment percentage would save the Exchequer £400 million in the payment of benefits?

Mr. Sheldon: I thank my hon. Friend for his intervention. I do not have those figures before me.
Any measure of taxation produces the kind of discriminatory problems that I have tried to analyse. I believe that the National Insurance Surcharge constitutes the most rational choice in present circumstances. It raises the revenue required for our PSBR objective, it minimises the effect on prices and it imposes no extra administrative burden or staffing requirements on the public or private sector. Accordingly I ask the House to support the Bill.

4.3 p.m.

Mr. John Nott: The Financial Secretary has ground out his brief to an empty House with the talent that we know so well and that we certainly admire as an important parliamentary asset—that of boring his audience. It is not surprising that the House is empty


today. There are several important meetings of the Labour Party's National Executive Committee outside the House and the less important and certainly less influential meeting of the Cabinet to consider the future of the nation. That no doubt explains why the Financial Secretary is not joined here today by the Chief Secretary and the Chancellor.
When the Financial Secretary asks what public expenditure cuts I have in mind, I must remind him that I am not yet a member of the Government. I thought that he and his colleagues were considering this afternoon in Cabinet the public expenditure cuts that they were to carry out and that have been belatedly forced upon them by the IMF. I shall return to public expenditure and try to answer some of the Minister's questions later.
Let me take as my text the first sentence that appeared in an article in The Observer yesterday by Mr. Alan Watkins under the heading
The last stand for social democracy".
Writing in this organ, which is the one in which social democracy is having almost its last stand—it is to be underwritten by a multi-national American oil company, which is probably appropriate for The Observer—Mr. Watkins said:
To defend Cabinets is usually neither effective journalistically nor agreeable personally. Attack is much more fun for everyone.
That is true.
With the single exception of the present Shadow Cabinet, which is decisive, enlightened and courageous at all times, all Cabinets tend to be compounded of every shade of political opinion, personal prejudice, departmental jockeying and self-interest. It is also axiomatic that any political body of 24 men and women is unlikely to agree on anything more sensible than the lowest common denominator of any policy. It is not surprising, therefore, that the biggest bouncer of them all, never too scrupulous in his methods, should have bounced this Bill through the Cabinet.
Mr. Watkins, who for us is a useful fund of tittle-tattle from the embattled Labour Benches, says one thing of the Treasury's arrogance in bouncing this particular measure through the Cabinet. He tells us that the Cabinet was not consulted

or even informed. That was followed by the recent rise in interest rates which he says the Cabinet first read about in the newspapers.
I do not know whether that is true. I suspect that the Cabinet was consulted after it was too late for it to object. But Mr. Watkins claims
the old revisionists Mrs. Shirley Williams and Mr. Anthony Crosland … decided
in the case of the IMF loan that the
Cabinet must behave as a Cabinet".
That is what is happening now. The Chief Secretary and the Chancellor are there. The Cabinet is behaving as a Cabinet while the nation awaits with expectation to see precisely what will emerge. I shall not be diverted on to the subject of the IMF loan, because today we must ask whether the Chancellor was wise to bounce this Bill through the Cabinet and whether the Labour Whips will be sensible to force it through the Commons.
In a way the July measures seem almost to be a part of history. They are remote and they bring to us not unhappy memories of July and August of this year. The memories are rather like those early childhood memories of bathing in the warm seas around our coasts. The measures seem very remote indeed, but in reality they have not even begun to bite. The newspapers are full of the next round of cuts and the next tax increases, and still there are three months or more to go before the last cuts take effect.
When this 23 per cent. increase in the tax on jobs takes effect there will be more than 1½ million unemployed in this country on, the Prime Minister assures us, a rising trend of unemployment. That only underlines the points we have repeatedly made in this House over the past two years—that by delaying action to reduce the deficit the Government would eventually be forced to do so by events in far worse conditions than would have been necessary a year or more ago. That is precisely the situation today.
I agree with the Chancellor about two substantial matters. I endorse his tactics with his Cabinet. One cannot ask a bunch of political morons to draft a Letter of Intent any more than one can


consult them about taxation policy. I have never believed in the Treasury consulting the Cabinet about very much. Let the Chancellor talk to individual Cabinet members individually. However, to try to consult them collectively about measures of every kind seems counterproductive. It is clear that the right hon. Gentleman did not consult them fully about this Bill.
Secondly, of course, it was essential for the Chancellor to go for a major reduction of the deficit in July, but there is more than one way of achieving that objective. Our objection to this measure is that it will fall almost wholly upon the private sector, the very sector of the economy which is already bearing an intolerable strain.
Until the Financial Secretary spoke, I thought that it would have some minor effect upon the public sector, but now I understand that the increase will be allowed for in the rate support grant and so all the objectives which the Chief Secretary himself set out in a speech on 26th November will be annulled. He said:
From 1965 to 1975 the number of employees in manufacturing industry fell from 8·39 million to 7·33 million, while in national and local government service, not including teachers and Health Service workers, the number rose from 1·3 million to 1·6 million. That position has to be reversed.
The whole burden of what the Chancellor and the Government have said over the past few months has underlined the need to get resources of men and money back into the private sector and out of the public sector, and yet this measure goes entirely contrary to that.
Will the main burden of tax fall on prices or on jobs? I agree with the Financial Secretary that it is difficult to estimate the answer, but with economic activity now declining, it seems probable that business men will not be able to pass this on in prices. I listened to the Financial Secretary's statistics with interest. I could not follow them, but I shall read them in the morning. I think they must be wrong.
If £1,000 million has to be taken out of the economy in tax in this way, it can come only out of prices—in which case it has precisely the same effect as VAT—or it must come, in whole or in part, out of profit margins. There is nowhere else it can come from. It is not possible for any statistical exercise to show that it will

both result in lower prices than an increase in VAT and have less effect on jobs. That is clearly impossible.
If the Financial Secretary says that the impact of this particular tax will build up only slowly and will build up more slowly than VAT, and that it will, therefore, have less effect on prices, that may, of course, be true. But it would also mean that it would have a lesser impact upon the public sector borrowing requirement, which is the reason for the measure. It cannot be correct, as the Financial Secretary claimed, that this measure will lead to lower unemployment than VAT on the one hand, and also lead to lower price increases on the other hand. If £1,000 million is taken out of the economy, it must have the same impact as £1,000 million taken in other ways. The question is how it falls. Whether the main burden of this tax is on prices or on jobs we do not know, but it seems that economic activity is now declining and looking different from how it looked in July. It will be difficult for business men to pass this burden through to prices as was originally thought to be possible.
Most of the assumptions upon which the tax was founded have been revised. Growth in the United States of America is faltering. The latest CBI report, published today, shows a slow-down in export orders. The Chancellor has revised his forecast of growth of GNP from 4½ per cent. to about 2 per cent. Altogether, it will be very difficult to push the tax through into prices as was thought likely to happen in July—and it will therefore have to make its impact upon margins, which means jobs and investment.
Incidentally, I have one major advantage over the Financial Secretary. It is that I do not have access to the medium-term forecast of the Treasury. We know from what has happened recently that there is no advantage in having access to it. I remind the House that in our debate on 10th March 1976, when we debated the Treasury assumptions contained in the public expenditure White Paper, every hon. Member who spoke, Labour and Tory, indicated that the resources table in the White Paper was obvious nonsense. Yet the Government defended it up and down while every hon. Member refuted it.
I quote from one comment I made briefly then:
This shows that with case I in the table, involving 4 per cent. growth over the next three years—2·4 per cent. over the five-year period—we should need to save about £6,650 million of Government expenditure by 1979, at 1975 survey prices, in order to achieve the objectives of the Government."—[Official Report, 10th March 1976; Vol. 907, c. 543.]
I remember very well the hon. Member for Luton, West (Mr. Sedgemore) saying that these figures were nothing more than a bunch of aspirations and bore no relation to reality. Here we are, only four months after the Treasury's last forecast, and a growth of 4½ per cent. has been revised downwards to 2 per cent., which is what the House was saying without access to the Treasury model and without the benefits of all that expert advice from which the Government suffer. We got it right and the whole of the system got it wrong.

Mr. Cant: Does the hon. Gentleman agree that there might be hope in that the Treasury is now willing to rent out its computer on an hourly basis and might not have quite so much use for it itself?

Mr. Nott: I have always been very surprised at the passion of the hon. Member for Motherwell and Wishaw (Dr. Bray) to get at this model in the Treasury.
I have some experience of looking at medium-term economic forecasts and I suspect their usefulness. We do not have a resources problem now. We have a problem of money. No one in his right mind would have made the cuts in spending now if one was looking purely at the resources problems of the economy. The reason the IMF is here and sterling is falling is that we have a financial imbalance in our accounts. Yet still the medium-term forecast is churning out this Keynsian demand-effect stuff which is of little relevance to our current problem.
Next we come to the justification, which I note that the Financial Secretary did not mention today but which he made the other night, for this tax. He said that the employers' contributions among our European partners were very much higher than our own. That argument was so trivial and inaccurate that we must not get drawn into it again today, and I notice that the Financial Secretary has not mentioned it again today.
Let me say once again, as I did the other night, that this surcharge has nothing whatever to do with social benefits. The full amount goes straight into the Consolidated Fund. It is a naked tax, not even hidden by the fig leaf of the National Insurance Fund. It goes straight into the revenue of the Exchequer and is used as a tax like any other.
Certainly if one were justifying this as a means of offsetting income tax there are other figures that one could quote to show that in the United Kingdom—if one takes the percentage income absorbed by income tax for a married couple on average earnings with two children—the head of the family is paying 20 per cent. of his earnings in tax. In France 0·7 per cent. goes in tax, in West Germany 7·9 per cent., in Belgium 7·8 per cent., in the Netherlands 2·9 per cent., and in Italy 2·4 per cent. If we are to use these kinds of percentages, we should at least state the whole of the case. They do not take us very far. This is clearly a tax and it has nothing to do with social contribution.
This brings me to the important subject of Churches and charities. I leave other hon. Members to deal with charities, but I think that the House, although it is empty, will take the gravest exception to being steamrollered by the Government on this matter. The Ways and Means Resolution is so tightly drawn that we are able to put down amendments to deal only with the rate and the date. We shall not be able to put on the Order Paper successfully anything to do with Churches or charities.
The letter in The Times today from the Bishop of London needs an answer from the Government and I hope that the Minister of State will reply to it when he winds up the debate. The change in the status of clergy from self-employed to employed persons will cost the Church an extra £350,000 a year—that is the figure mentioned by the bishop in The Times. The cost of these proposals will bring the total figure to £700,000. If that estimate is too high or inaccurate, no doubt the Minister of State will correct it. Clearly there is a substantial additional impost to be made upon the Church of England. I refer to the Church of England alone—that is the only Church referred to by the Bishop of London.
More directly, I wish to refer to the Minister of State's remarks in Committee on the Development Land Tax Bill earlier this year. He said:
there is no intention of extending taxation, be it income tax, capital gains tax, corporation tax or any other tax, except those indirect taxes which we have imposed on chariies for a long time.
Of course this increases the national insurance stamp which the employer—the Church—will have to pay on behalf of its employees—the clergy. We understand that it is an addition to the impost which the Church is already going to pay, but this extra money does not flow into the National Insurance Fund. It is an "any other tax" which the Minister of State clearly said would not be imposed on the Church.

The Minister of State, Treasury (Mr. Denzil Davies): Perhaps I may deal with this point now. I said clearly that I was dealing with direct taxes on gains or profits. The list comprised income tax, which is a tax on profits, capital gains tax, a tax on gains, corporation tax, a tax on profits, and development land tax, a tax on gains, or profits. I specifically excluded indirect taxation, which is not a tax on gains or profits. This surcharge is not a tax on gains or profits. It is an indirect tax and is clearly excluded from my statement.

Mr. Nott: I have the Minister's statement here. He said:
there is no intention of extending taxation, be it income tax, capital gains tax, corporation tax"—
that may refer to direct taxes—
or any other tax, except those indirect taxes which we have imposed on charities for a long time."—[Official Report, Standing Committe J, 13th May 1976; c. 1172.]
I understood that this was an indirect tax. The Financial Secretary has explained that it is an indirect tax which will fall upon prices—that was the whole burden of his remarks—and was an alternative to VAT but it is not imposed on charities now. That is how I understand it and how the whole House must understand it. It bears no other interpretation.
The Financial Secretary argued that any other attempt to raise additional revenue of £1,000 million, whether by VAT or any other method, would have an adverse impact on activity. That is

certainly correct, but we can assert at this juncture that the surcharge will be more damaging to jobs and new investment than the equivalent amount of revenue raised in VAT.
Contrary to what the Financial Secretary said when he read out his statistics, they were not based upon the very unhappy economic situation which we now foresee, the downturn in world trade and the United States' economy. Indeed, only last week, the Chancellor of the Exchequer was challenged in the House by the hon. Member for Luton, West on the regressive nature of indirect taxation. The Chancellor responded:
It certainly was true 30 years ago that, broadly, indirect taxation was regressive and income tax was progressive, in the social sense. That is no longer true when income tax is paid at levels of earnings below those which qualify for supplementary benefit. It cannot really be regarded as a progressive tax. On the other hand, the structure of the value added tax, which zero rates half—the most important half—of family expenditure, can be shown to be in many respects progressive rather than regressive."—[Official Report, 30th November 1976; Vol. 921, c. 719.]
Yet now we have the Financial Secretary coming along today boasting about the fact that this tax is broadly based.
Only a week ago, the Chancellor was singing a eulogy to VAT—no doubt in preparation for what he thought he might have to do any moment now—saying that it was not a broadly based tax and was greatly advantageous to the families of this country in comparison with income tax because it fell upon only half of household expenditure and therefore we should not think of it any longer as being regressive. Now the Treasury, in the form of the Financial Secretary is here and says that this surcharge is a good tax, that it is broadly based, regressive and falls on food, fuel and all the items that the Chancellor of the Exchequer excluded.
I do not know what the Treasury really wants. It is clear that it badly needs money and that, with the IMF leaning on it, it has to find money somewhere and will use any excuse or statistic, however bogus, in order to get this Bill past the Government Back Benchers. Since there are only two of the Financial Secretary's colleagues sitting behind him, I do not think that the problem will be too great on this occasion.
Of course, we would not choose to raise £1,000 million by this method or by VAT at the moment. We have repeatedly made clear that we would find the money out of public spending generally. Before the Financial Secretary becomes too chirpy, let me say that the mere passage of events has proved our case. Every single word said by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) when we last debated this matter has come to pass.
Had the Cabinet agreed to find £2,000 million out of public expenditure in July —which is certainly what our sterling creditors were expecting—it is possible to argue that the collapse of sterling might have been averted, that the massive social problems which that collapse is likely to cause could have been avoided and that our independence as a nation would not have been put in jeopardy in the way that we are now experiencing.
Only four months later, the Government are faced with the demand to find £2,000 million out of public spending anyway. What was the debate all about at that time? The Financial Secretary and Treasury Ministers were saying that if they found an extra £1,000 million out of public expenditure, it would have unfortunate effects, that it would destroy jobs, that it was a typical Tory suggestion, that it was just what we would do. They said that they would find it by way of a tax which would not hurt anybody.
Now, not only has the country got the £1,000 million tax on jobs, it has had the £1,000 million out of public expenditure in July and is going to get probably more than another £1,000 million out of public expenditure next week. Where has it all got us? Nowhere at all. If the Chancellor and his colleagues had done the right thing in July, we should not be where we are today.
I shall conclude by answering the Financial Secretary's challenge about the Opposition's view—probably a mistake and my right hon. and hon. Friends will be angry with me. If the Government had followed our advice two years ago, 18th months ago and six months ago and had taken the necessary amounts out of public spending to bring the Budget more nearly into balance—and none of my hon. or right hon. Friends has ever made such a ludicrous suggestion that £5,000 million

should be taken out in the next year —the country would not now be facing the national humiliation which it is now suffering at the hands of the IMF.
I feel ashamed when I think that the managing director of the IMF has to sneak his way in and out of London for fear of being seen and molested by the Press. I feel ashamed that the less developed nations sit on the board of the Fund and are now telling us how to run our country because of the profligacy of this Government. The Government should be ashamed that the less developed countries, which are experiencing more severe problems than our own are telling us what to do, and that the IMF has practically exhausted its funds and has to pre-empt its dwindling resources for us. The Government will have to take the steps which we have been urging for the last two years in any case.
The matter is not over. It has still some time to run and the sooner a start is made the happier will be our country. The sooner these measures are taken, the less severe will be the consequences in the medium term.

4.32 p.m.

Mr. Terry Walker: The hon. Member for St. Ives (Mr. Nott) has still refused to say which items he would choose to cut. That was the question which he was asked by my hon. Friend the Financial Secretary. It is no good his saying that the Opposition told us what to do two years or 18 months ago. The question has never been answered by the Leader of the Opposition or by the right hon. and learned Member for Surrey, East (Sir G. Howe), although it has come up at Question Time on many occasions. I regard the issue as a red herring, and I do not propose to follow the hon. Member for St. Ives in his argument.
My hon. Friend the Financial Secretary and my right hon. Friend the Chancellor of the Exchequer have an unenviable task in bringing forward this measure, but it is necessary if we are to reduce the public sector borrowing requirement as our economy recovers from the recession. I appreciate the necessity of this measure as opposed to the more Draconian measures which have been canvassed by the Opposition. I do not say that they have suggested such measures, but they have canvassed them in the newspapers. That is why I shall support the Government.
I rise to tell the House of the grave concern felt by the churches and charities about the Government's proposal to add two percentage points to employers national insurance contributions. That money is to go to the Exchequer and not to the National Insurance Fund, which means that it is a payroll tax and that it does not raise revenue for the Fund. The Chancellor of the Exchequer has agreed that that is so. If implemented in its present form, the proposal will seriously affect churches and charities. It will substantially put up the cost of staff.
For example, the increase for Dr. Barnardo's will be about £120,000 a year and for the National Children's Home about £90,000 a year. That means that voluntary organisations will have to curtail their activities at a time when my right hon. Friend the Secretary of State for Social Services has said that the Government are anxious for greater reliance to be placed on voluntary organisations because of financial pressures on local authorities. The Government must not forget that.
Unlike many other employers, the churches and charities will not be able to pass on the tax in increased prices or by setting it against corporation tax as the Chancellor of the Exchequer has suggested. I speak for all the churches, not only the Church of England.
The proposals are particularly unfortunate and inopportune for all denominations. They come at a time when most of the denominations have reluctantly agreed to bow to the Government's wishes to let their clergy become employed contributors for national insurance purposes. From the Church of England's point of view, I shall feel much happier when the clergy are regarded as employed persons rather than self-employed, because that will be in their interests. This extra 2 per cent. comes at a time when it has been agreed by the Church that April 1978 shall be the date when clergy become employed persons. It is a great blow to the Church of England.
I can give figures only for the Church of England, but it seems that the change of status of clergy will cost the Church of England an additional £350,000 a year. That cost will initially fall upon

the Church Commissioners because, being responsible for the emoluments of clergy, they will have to pay most of the money. They are the only people in a position to act as employers for national insurance purposes. On the other hand—this is what I want my hon. Friend the Financial Secretary to consider—the Commissioners have no means whatever of passing on the additional costs in increased prices or charges in the way as can be done by commercial organisations. That argument has been put on many occasions.
The effect of this increase in costs, therefore, can only be to reduce the amount that would otherwise be available for the payment of clergy stipends and pensions. In other words, the whole of the 2 per cent. increase in employers' contributions would have to come directly or indirectly out of the pockets of the clergy themselves and their widows, and in recent years they have probably been among the hardest hit, being part of a lower-paid category of workers. Other denominations as well as the Church of England will obviously be affected in much the same way.
That is the fact that has led us to make representations. Indeed, the Church Commissioners made representations to the Chancellor on 19th August 1976. We made these points because we felt that there was a case for us to have special consideration. As a result of the inquiries we have made, we understand that it is not the present intention to extend charity exemption to this new form of tax. Therefore, what we are asking is that consideration should be given to this matter and that full knowledge of the facts should be understood by the Treasury, which should understand what would happen if this kind of tax were levied upon the Church and charities.
The policy of granting tax relief to charities has long been accepted as being in the interests of the community. If this policy is reversed to any material extent, by direct or indirect methods, for reason of principle or of administrative convenience, suddenly or by a slow erosion, the consequences for the Church will be grave and far-reaching. A full-time minister, even on the much-reduced scale of today, is an important person.


He plays a very important part in the life and work of the community. It is these points that we have sought to make in our representations.
There is another very important consideration, quite apart from the cost and the timing of these proposals, which are very unfortunate. The clergy have planned to become employed persons. The churches and charities are deeply concerned at the implications in this matter for the future and the fact that it will mark a breach in the principle that on grounds of public benefit they are not subject to direct taxation. That is a principle which Governments of all political persuasions have long been at pains to maintain. Churches and charities are not, therefore, liable to corporation tax, capital gains tax or capital transfer tax. When the House decided that they could not be wholly exempt from development land tax, the Financial Secretary went out of his way to explain to the House that that was not a tax in the ordinary sense of the term and that the arrangements were not to be taken as marking any general departure from the principle that charities were not taxed.
I hope that these matters can be looked at again. Lord Allen of Abbeydale has written to the Chancellor on behalf of the National Council of Social Service. The two Archbishops have written to the Prime Minister on this matter, and I believe that meetings are planned. The Churches Main Committee, which represents all the churches, the Pensions Board and the Church Commissioners are unanimous and are strongly of the opinion that further efforts should be made to persuade the Government to allow charities, including the churches, exemption from this new form of tax.
I therefore ask the Minister, even at this late stage, to reconsider the situation. If it is necessary to draft new clauses, let us hope that that will be done. If, however, that cannot be done, perhaps we may have a promise that at a later stage some help can be given. I earnestly ask my hon. Friend to look again at this matter. It is worrying a great many people in the churches and in charities.

4.45 p.m.

Mr. David Mitchell: We are asked today to pass a Bill which will take £1,000 million out of business, commerce, Churches and charities. I join the hon. Member for Kingswood (Mr. Walker) in his sense of outrage at the thought of £120,000 having to be found by Dr. Barnardo's Homes and the additional sums to be found by other charities and the Churches hard pressed by so many rising costs already.
I should like to look at three aspects of this matter. They are, first, the way in which this contradicts and undermines the whole of the Chancellor's design for recovery; secondly, the effect that it will have on business generally and the small business in particular; thirdly, the effect of this tax on unemployment.
Before doing so, I should like to utter a protest to the Treasury Bench about this abuse of the national insurance system. We are starting on a very dangerous road when the national insurance system is used as a method of raising tax. Once the national insurance contribution is part of tax and rises in line with public policy, so we are on a slippery road that leads to benefits being variable in accordance with public policy and the current politico-economic trend. There is a very dangerous risk here that there will be a backlash from contributors to the National Insurance Fund, who have contributed, albeit grudgingly, in the past in the knowledge that they were contributing to what would one day be their pension, or their fall-back if they were unemployed, or their sickness benefit. To find now that their contributions are going into the general maw of Government spending is unacceptable to many of them.
I turn to the undermining of the Chancellor's plans for national recovery. Hon Members will know that I am no sycophantic admirer and supporter of the Chancellor of the Exchequer, but he has repeatedly made it clear that he will reduce next year's prospective increases in Government expenditure in order to release resources, and if the Government take less resources, more will be available for industrial regeneration and modernisation, and the financing of expansion, particularly of exports.
Perhaps I may quote the Chancellor's view on this matter as expressed in his Budget statement. He referred to the Government having
limited the demands of the public sector so as to make room for industrial expansion.
He went on to talk about
temporary shortages of capacity—skilled manpower, capital equipment, raw materials, components and so on".—[Official Report, 6th April 1976; Vol. 908, c. 240, 241.]
He spoke about his way of dealing with the "bottleneck situation. There are further references to the need to shift resources, and he talked particularly about his concern that as world trade expanded and new trading opportunities arose, none of these opportunities should be missed by creditworthy companies because of shortage of available finance. He said that there was a need to avoid crowding out and the like.
Somewhat exceptionally, the Chancellor was still saying the same thing in July. For any Chancellor to be saying the same thing a few months later is perhaps noteworthy. On 22nd July he warned of the danger that
financing of the public sector will pre-empt private savings which productive industry is likely to require on a substantial scale. "— [Official Report, 22nd July 1976; Vol. 915, c. 2012.]
Private industry does require those private savings on a substantial scale. The Chancellor is quite right. But what this Bill will do is to take £1,000 million of them away, and that is the direct contradiction to the policies outlined by the Chancellor.
As if to underline my point, The Times last Friday under the headline "Is innovation caught in a poverty trap?" pointed out that the £25,000 MacRobert Award for engineering innovation administered by the Council of Engineering Institutions will not be awarded this year because no successful innovation had been brought forward over the past year which would warrant it.
That underlines what the report by the Select Committee on Science and Technology said, that the greatest obstacle to technological innovation was neither a shortage of ideas nor an absence of opportunity but that innovation was limited because industry was short of capital and because risk capital was unavailable. In those circumstances, what sense can it make for the Chancellor to

send his minions to the House today to recommend a Bill which takes £1,000 million from the industrial sector? The Chancellor talks of moving resources into industry, but his actions achieve the very reverse.
My second point relates to the effect on business. Anyone who wants to ruin private enterprise in the mixed economy can use one of three methods: he can denude it of skilled labour, he can destroy the motivation of management or he can strip it of essential working capital. Along with a few broadcasts encouraging divisive class warfare, the mixture is almost certain to succeed.
That is the situation we face. Skilled labour and management are tax-sick. Much of the £1,000 million proposed in the Bill will come out of working capital. I know that the Treasury will say that part of it will be passed on in price increases. Part of it may—after a suitable delay while industry carries the costs itself—but there is one sector which will not be able to pass it on, and that is the sector of industry whose prices are not decided by price commissions or anyone else but by the hard thrust of competition, by the fact that putting up prices means that one cannot sell. It is on those firms, predominantly the small business sector, that the effect of the tax will fall most severely.
A quarter of hon. Members represent regional constituencies which rely on small businesses more than any other part of the economy. The effect on small businesses will be very serious, coming on top of the efforts that have to be made to run a business while borrowing money at 17 or 18 per cent. —the point to which the Government have driven un interest rates —and on top of multi-rate VAT, higher corporation tax and the threat of a wealth tax.
I estimate—perhaps the Minister can correct me if I am wrong—that this Bill will take £202 million out of the small business sector over the next year. One tends to overlook the multiplier effect. A small business expands or survives—if it does—by ploughing back its profits, its surplus from the previous year's trading, and from bank borrowing. But bank borrowing is always limited by the resources of the company. No bank will lend without regard to the company's resources.
Thus, when the Government strip businesses of money by means of this tax, they will reduce the borrowing ability of businesses and attack small firms who cannot go to shareholders or the Stock Exchange for more working capital. This will have a serious effect in a time of inflation, when these businesses need more money and the Chancellor is supposed to be urging them on to higher production for export.
The Bill will mean less ploughing back, less borrowing, less modernisation and a less competitive British industry. We have a record Chancellor. He is not top of the pops. His record is the achievement of the highest level of bankruptcies recorded—not just the highest level under this Government, since the war or even since 1931, but the highest level ever since records were first kept in 1914.
Can the Minister of State estimate the number of small businesses which will be bankrupted by this proposal? He looks slightly bewildered. Does he know the number? I hope that he will guide the House. If he does not give us an indication, we are inevitably driven to assume that he does not know. That would not be surprising, of course, from a Government who care so little about small firms.
Turning to the estimates of the numbers who will be unemployed as a result of the Bill, the House should be grateful to the Expenditure Committee, whose activities were reported in The Times on 29th July. There has been some misunderstanding about this, and I hope that the House will carefully consider it. According to the report, Mr. Posner, who was Deputy Chief Economic Adviser to the Treasury, advised the Committee
… that Britain's gross national product would be some ¾ per cent. lower by early 1978 than it would otherwise have been without the imposition of the £2,000m package of measures. On conventional Treasury arithmetic, this lower level of economic activity would result in 150,000 to 160,000 fewer jobs.
Half of that amount—£1,000 million—is tied up in this Bill. I therefore take it that 75,000 to 80,000 of the additional unemployed will be created as a result of the Bill.
We should consider what that means for our own constituencies. I should like the advice of hon. Members. Will

it be equally shared among all 635 constituencies, with each constituency suffering another 120 unemployed, or is it true that some constituencies which traditionally have had high unemployment will have much more as a result of the Bill while others will get off relatively lightly?
How will hon. Members answer the questions of their newly unemployed constituents? Are they waiting for the right hon. Member for Bristol, South-East (Mr. Benn), who sits on the opposition bench in the Cabinet, to give a lead? Are they waiting for the hon. Member for Liverpool, Walton (Mr. Heffer), who unfortunately is not here at the moment, who claims to support small businesses, to give a lead? Or will the hon. Member for Bolsover (Mr. Skinner), sitting in his advice session in his constituency office, be interrupting the unemployed from a sedentary position when they come to tell him their problems? What will the keeper of the conscience of the Left, the hon. Member for Paddington (Mr. Latham) do when he meets some of these extra unemployed in the streets of his constituency?
Hon. Members should consider how the Bill will affect their constituents. The unemployed are not an experiment for the Chancellor; they are real people who will be out of work. They will be hurt personally, their families will be hurt, their self-respect will be hurt. These are the people about whom we are thinking, and I hope that Labour Members will also think about them when they vote tonight.

5.0 p.m.

Mr. James Sillars: I must tell the hon. Member for Basingstoke (Mr. Mitchell) that most people on this side of the House think about that matter all the time. If in the next six months the Government were to change, I should look forward to the hon. Gentleman's contribution if his Front Bench were to cut public expenditure and increase unemployment. No doubt, he would come into the Lobby with Socialists on that occasion.
This is part of the debate about how to handle public expenditure problems, which arise out of the serious decline in the economy. There are two reasons for that decline. One is that the country


was very ill-advised to say "Yes" in the Common Market referendum. It is a remarkable feature of our political debate that the subject that dominated political debate for well over a decade is never talked about now that we are full-blown members of the EEC. Yet it is not so long ago that we were told that if we voted "Yes" there would be an investment boom such as we had never seen in modern times and jobs galore would come to every part of the United Kingdom. One of the major poster campaigns talks about jobs for the boys. The right hon. Member for Birmingham, Stechford (Mr. Jenkins) is one of the few boys to get any jobs out of the Common Market.
The other reason why it is inevitable is that early in their period in office after October 1974 the Government, for reasons known only to themselves in the inner councils of the Cabinet, gave up full employment as one of the priorities of a Labour Government. Once they had subordinated full employment to certain other issues in the economy we inevitably reached the stage of having 1·3 million unemployed.
My hon. Friend the Financial Secretary said that the great difficulty with a Conservative Government was that they always fell between two stools, that they cut public expenditure but never generated the necessary investment to create jobs, and that the necessary switch of resources never took place to the extent expected by those who cut public expenditure. That could be a description of the Labour Government's management of the economy as well. They have cut public expenditure and yet unemployment has gone up and up. The Glasgow Herald today gives one of the reasons. Under the heading "More Invested Abroad" on page 10 it has a news item containing a statement by Mr. I. R. Guild, Chairman of Dundee's Northern American Trust. The report says:
The implication for the trust's policy is that until Britain is 'in a mood to take the steps necessary to halt inflation and restore the confidence of other countries in sterling' the Northern American board intends to hold a large part of the company's funds in countries 'whose atmosphere is more conducive to growth and financial prosperity.'
Overseas investment went up from 50 per cent. to 63 per cent. of the portfolio".
This is the problem with the Labour Government's economic strategy, just as

it was the problem with the previous Government's economic strategy.
We are not controlling investment and directing it into this country. The result is that the Government are falling between two stools and unemployment is rising. According to the Prime Minister, it will continue to rise for a considerable time in 1977.
No matter how skilfully my hon. Friend moved the Second Reading, he has chosen to cut the public sector borrowing requirement by increasing unemployment—although there are arguments about the numbers—without being able to give any guarantee that the Government's economic managers can take control of the investment available in this country.
We are talking about an enormous deflation—£1,000 million, which even in inflationary times is a substantial deflationary package. We must think of what has already happened and what is probably to come before we pack up for the Christmas holiday. We all know that the argument in the Cabinet is about the amount of deflation as a condition of the IMF loan rather than whether there is to be any reflation of the economy. My hon. Friend and I have had arguments about this before. I shall not attack him on value added tax and his assessment of the Alternatives. I shall just put that matter on the file. We shall see whether the Chancellor of the Exchequer uses that argument or a counter-argument when he brings the package before the House.
I turn to the alternatives. It will be difficult for ordinary Labour supporters to accept the argument that the Bill is one of the only measures available to the Government just after a week in which our newspapers have regaled us with the stories of rich people such as Sir Hugh Fraser being able to run up gambling debts of £1½ million to £2 million and to write them off. If will be difficult for them to believe it when the Labour Government are putting people out of work. I have had arguments before with the Government about their economic strategy. I do not think that they have an economic strategy in any Socialist


sense. The hon. Member for Hertfordshire, South (Mr. Parkinson) was right when he intervened in my hon. Friend's speech. Hope is a major ingredient of the Government's approach to economic problems.
As I listened to my hon. Friend and the hon. Member for St. Ives (Mr. Nott) I often wondered whether some of the Left-wing young Socialists in the Labour Party were not right. It was an argument between technologists in the capitalist system. They were not arguing about fundamental changes in the system. We were listening to two technologists arguing how one operated the mechanism. There seemed to be an underlying assumption that it was the best mechanism one could find anywhere in the world. I returned to the conclusion I had reached some years ago that we must find alternatives to the capitalist system. That is why the Socialist movement was born. It is sad to see a Labour Minister engaged in that kind of debate with a Conservative.
If the Government had taken the advice of the Tribune Group when it was offered early in the life of this Parliament and had gone for selective import controls and the direction and control of investment, we should not be in our present position. The Government will argue that it is very difficult, because of the GATT rules, for us to impose selective import controls and the rest, but I believe that they are inevitable anyway and that it is a pity that they were not introduced before.
In some of his major economic statements, the Chancellor has admitted that when the United Kingdom economy has moved into a growth period we have sucked in a disproportionate amount of imports. We could reasonably and legitimately have argued with the outside world that we were entitled to take our share of its goods but not a disproportionate share. We shall skirt around the economic problems all the time, and unemployment will grow worse and worse—

Mr. David Mitchell: What greater and more effective import control could one have than a 45 per cent. devaluation, with a 45 per cent. increase in the cost of imports?

Mr. Sillars: It does not appear to have worked. I know the argument that if one deflates the economy one does not draw in the imports, but such has been the reduced base of the United Kingdom manufacturing sector that that argument has not worked for a considerable time.
I believe that my hon. Friend could have gained the same amount of money to reduce the public sector borrowing requirement by reducing unemployment by 2 per cent. Every 1 per cent. reduction in unemployment means £400 million less in the public sector borrowing requirement.
As I go round the city of Glasgow and my constituency I see appalling housing conditions and I also see the capacity to manufacture bricks and cement. There is plenty of sand available, and building workers are unemployed. As a Socialist, I cannot for the life of me understand why, when we are supposed to be run by a Socialist Administration, we cannot put all those ingredients together to tackle the bad housing in Glasgow and the housing problem in places such as my constituency. We have houses there in which it is very difficult for people to live, especially in the present wintry conditions.
I believe that the Government's whole economic strategy has gone in the direction of Conservatism and away from Socialism.
I understand that this Bill is one of the measures designed to give effect to the July package. I did not support the July package. Therefore, it would be illogical of me to support a measure designed to achieve the objective set out in the July package which I opposed.

5.10 p.m.

Mr. Cyril Smith: I submit that the Bill, apart from gathering an extra tax, can have only three possible effects: increased prices, more bankruptcies, and increased numbers of people being unemployed, to whom presumably the State will distribute part of the tax that it proposes to collect to make them unemployed.
I agree with the hon. Member for South Ayrshire (Mr. Sillars) that it would be nice if we could evolve ways of paying people to work instead of not to work. It seems almost impossible for this Government and, indeed, previous and, I


imagine, future Governments to evolve any kind of principle which relates together all the facilities, on the one hand, to assist the unemployed and on the other hand, in consequence of them being unemployed, all the materials and skill, and so on, which are available. If the State has to pay people not to work why those funds cannot be used to pay them to work on providing good housing, and so on, has always been beyond my comprehension.
The Government have now conceded that a new kind of tax is envisaged in the Bill. It is a tax designed as part of the employers' contribution through the National Insurance Fund. For the first time it makes National Insurance Fund taxation a tool of economic management. That is a serious departure from past practice and the House should be fully aware of it.
The Liberal Party has for a long time advocated a simple payroll tax to replace the employers' contributions and regional employment premiums. It should be capable of being varied on a regional basis according to employment and the availability of employment in the various regions.
The Bill nibbles, as it were, at an employment tax, but it is totally unimaginative. It imposes a greater burden on industry and local government without any attempt to use that increased burden to stimulate employment prospects where they are most urgently needed.
In the Ways and Means debate last week I said that I doubted the ability of certain sections of industry to stand the extra tax which will be placed on it in consequence of the Bill. I doubt whether industry can continue to absorb increased taxes of this kind.
At the weekend the Chancellor of the Exchequer publicly referred to the high burden of income tax in this country. But there are many kinds of taxes which affect industry and which, in my view, have reached absorption point. The Government must understand that there is a limit to the amount of taxation which can be imposed on industry.
If we want industry to invest—I attended a board meeting of my own company this morning at which this very item was on the agenda—it must feel that it has the incentive to invest and that it

will not constantly be clobbered by successive Governments both by legislation and increased taxation.
Last Monday I heard an interesting speculation—strangely enough in Scotland—by a professor from Sheffield University. He made the point that it seemed illogical to argue that the country needed increased investment to reduce the numbers of unemployed. He argued, with some logic, that if the investment is made correctly, it should mean fewer rather than more people being employed.
I have long held the view that we should start thinking about full production as opposed to full employment. They are not necessarily the same. A reduced retirement age for men, a shorter working week, and so on, are matters which come into the whole argument about the difference between full production and full employment.
When this tax in the Bill was envisaged, we were envisaging a mini boom some time in 1977–78. It is obvious now that that will not take place. The mini boom, which was forecast for 1977–78, is now unlikely to take place. Therefore, the circumstances in which the principles of this Bill were conceived are now completely different.
There are many weaknesses in the tax. It affects exporters in the same way as importers. It does not matter, under the terms of this Bill, whether one imports or exports. However, it matters in terms of the economy. One is a benefit to the economy whereas the other can be—not necessarily, but it often is—a hindrance to it. The tax makes no differentiation between the two. It seems to assume that industry is a sacred cow with an unlimited supply of milk. It takes no account of the ability of a company to pay, as does profits tax, and it takes no account of a desire to pay, as does VAT, for example. If one does not buy goods, one does not pay VAT. The tax hits small as well as large and prosperous businesses. It hits charities as well as profit-making concerns. It hits churches as well as gambling halls.
This is a rotten Bill with the seed of a decent idea, but a seed which is being indecently cultivated. It will increase the numbers of people unemployed. It will be the difference between a profit


and a loss to many companies. It will mean increased prices. I certainly take the view that it is ill-conceived. I strongly hold the view that it is ill-timed. My colleagues and I will certainly vote against it. I hope that all those Labour Members who urged people to lobby Parliament only a few days ago on the subject of unemployment will be with us in the Lobbies tonight, because this Bill will inevitably increase unemployment. I hope that the House will decide to throw out the Bill.

5.18 p.m.

Mrs. Margaret Bain: The Scottish National Party opposed the July measures. Therefore, we shall vote against this piece of legislation.
We believe that there is an alternative for the people of Scotland to continuing under the present set-up of successive Westminster Governments who never seem to come to any clear conclusion on how to solve Scotland's problems.
I was extremely amused when the hon. Member for St. Ives (Mr. Nott) berated the Government and suggested that they should follow Conservative advice. Like the hon. Member for South Ayrshire (Mr. Sillars), I was intrigued because the public expenditure cuts envisaged by the Conservative Opposition would lead to yet further unemployment, particularly in Scotland where there is a large public sector and where the present cuts are having a disastrous effect on the whole community.
As for the dynamic Shadow Cabinet that the hon. Gentleman describes, again I cannot believe him. I prefer to accept the criticism of the Reform Group that calls the members of the Shadow Cabinet semi-crazed kamikaze pilots. The only part of his remarks with which I agreed was when he said that the Government desperately need money.
Various Opposition Members have said that they are representatives of the regions. As the House will know, I consider myself a representative not of a region but of a nation, although I represent an area within it. In that area there are many small companies and small businesses that are extremely important for employment opportunities. My fear is that by introducing this measure many

of the small companies will not be able to continue. They are already being affected by difficulties such as increased rates of inflation. They are having to face the difficulties caused by public expenditure cuts. They already have surcharges placed upon them. They are having to cope with a great deal of legislation that makes the running of a company extremely difficult. Any extra taxation is totally unacceptable. I fear that it would have disastrous results in Scotland.
I echo the questions that have been put by other hon. Members—what estimate has been made of the effect of this measure on small businesses? What consultation has taken place with representatives of small companies? It seems that the Government intend to take away the opportunity for many companies to use their money for investment, which would ultimately provide more employment.
Unemployment is the key to the whole debate. As there are only two Scottish Members in the Chamber, both from minority parties, it is interesting to look back to 1961 to see what the present Secretary of State for Scotland said when a payroll tax was first introduced. He said:
The important point is what is likely to be the effect of the payroll tax if it is imposed. If the Financial Secretary has taken account of the reaction to this proposal in Scotland, for example, where, as he knows, we have serious unemployment problems, he will realise that, not only Scottish trade unionists, but Scottish employers and other organisations … have said that they thoroughly disagree with the Government's proposal for a payroll tax.
He then said:
However justifiable that may be in areas where there is a tremendous demand for labour, it would certainly prove a considerable blow to areas like Scotland where the opposite is and has been the case during the last few years." —[Official Report, 20th April 1961, Vol. 638, c. 1425–26.]
Plus ça change … except that the right hon. Gentleman will probably vote for an increase in this piece of taxation.
We recognise that the Government are desperately looking for £1,000 million. As it will be taken from the public sector, there will be the spread of more unemployment in public sector services. Only yesterday I was speaking to a mass meeting of members of the Transport and General Workers Union in Partick, where there is the threat of 3,000 redundancies


within public transport services in Glasgow. That is a city that has the lowest level of car ownership in the whole United Kingdom. How ludicrous can the Government get?
We must bear in mind the whole background of the IMF package and the terms that it will put to the Government. When I was listening to the radio this morning in Scotland before coming to Westminster I heard that there is a rumour that the IMF will suggest to the Government that they reduce taxation on the North Sea oil companies because the companies are getting a bit worried about the present situation. I hope that a Treasury representative will be able to deny that rumour. The oil companies are not here as charity organisations. They are making larger profits in operating off this country than anywhere else in the world. The sooner the Government comes to terms with the realities and make it more difficult for the companies to walk off with excess profits the better.
We in Scotland keep waiting for the great economic miracle to occur. I put it to the Government Front Bench that if a Conservative Government were in power there would be riots in the West of Scotland. The Government cannot continue to count on the undying support of those in the West of Scotland. They are reaching the end of their tether. They see what is happening. They see services cut back and living standards decline. They see rising unemployment.
In speeches over the weekend senior members of the Government predicted that we shall have even more unemployment this winter. That is totally unacceptable to my hon. Friends. The Government, by bringing in this measure, are creating more unemployment. We have no hesitation in opposing it.

5.26 p.m.

Mr. John Watkinson: I was moved to participate in the debate because of a remark made by the hon. Member for Rochdale (Mr. Smith) with which I have a great deal of sympathy. The hon. Gentleman said that if we seek greater investment in industry generally, that in itself will entail a movement out of the private sector as new machinery is introduced, new investment is made and industry is made more efficient.
An increase in investment will mean that we shall be faced with the added problem of finding new jobs for those who have been displaced. Even if the Government's industrial strategy, which I wholeheartedly support, is successful, we shall still be faced with the problem of unemployment, a problem that exists now but will continue to a much greater extent as we move forward than probably any of us anticipated.
That leads me to the conclusion that in our own country and in other industrialised countries in the West, we are facing not unemployment of a partial or transient nature but long-term structural unemployment in our economy. That may entail Western countries, and ours in particular, considering new means whereby we can employ the greatest possible number of people in the economy. Faced with structural unemployment, there may well be involved direct Government intervention in employment, involving, perhaps, legislation on the number of hours that can be worked, for example.
This is an area that needs to be investigated, and should be investigated, by a Labour Administration. We have been warning about this for a long time. We have said that we are moving into an era in which there will be an increased amount of leisure. That leisure is being forced unwillingly upon a large number of people through unemployment. We may have to be looking at ways in which we can realistically share out work among our population. I do not support the view that there are hundreds of thousands of people in this country who enjoy being on the dole, who actually enjoy not working. My view from my constituency is that most of the people I meet who are out of work are desperately looking for jobs. They want to work and they are seeking work.
If we face the problem that is faced in this country, in the United States, in Western Germany and in the West as a whole, where there are between 12 million and 15 million people unemployed, we may have to relook at our approach and consider new means whereby we can bring people into employment and share out the work in a much more equitable fashion than at present. At the moment we rely basically on the market mechanism. That mechanism may no longer


be the one which provides for full employment in our economy.
In bringing forward this measure it seems that the Government are attempting to deal with one of the fundamental economic problems confronting the nation—namely, the level of the public sector borrowing requirement. That element has emerged as one of the most significant economic variables at present. We all know of the enormous burdens that the Government—the taxpayers—are presently having to bear to sustain Government expenditure. At the same time we know that the Government, to sustain the level of public expenditure, are having to borrow tens of thousands of millions of pounds above revenue.
Only a matter of a few years ago a Conservative Government were faced with similar difficulties. They too, had to increase the borrowing requirement and did so massively under Lord Barber. The effects of that were the so-called Barber boom. We know now the effect which that boom had in inflationary terms upon our economy. The difficulty facing the Government is that they have to learn the lessons of what took place under Chancellor Barber. At the same time they have to maintain, as far as they are able, the level of employment in the economy. One way of doing that is by creating jobs in the public sector by operating a high public sector borrowing requirement. There is nothing ignoble about a high public sector borrowing requirement. Under previous administrations it has been operated to keep people in work.
We know that the danger involved in maintaining a high level of PSBR is the inflationary tendency engendered by such a borrowing requirement. The difficulty, under our existing banking and financial systems, is that if the Government are forced into the banking system, to maintain their borrowing, that gives the banks the power to create money. The creation of money may well lead to a vicious increase in the inflationary spiral.
The prime policy of this Government has been to try to control the level of inflation in our economy. What the Government are saying is that they are sticking to that policy. They are saying that to sustain the public sector, without

further inflation, and to maintain control over the public sector borrowing requirement, they are seeking means other than the printing presses to finance their effort. The Government are seeking to do this through the surcharge—

Mr. Costain: Surely the hon. Gentleman is not trying to persuade the House that adding 2 per cent. to salaries will not increase prices. The Government Front Bench admit that it will do so.

Mr. Watkinson: I have to accept that there will be some measure of this surcharge passed on by way of increased prices. That has been accepted by the Government Front Bench. What I say is that with the present high level of PSBR the risks are that it will topple over into spiralling inflation on a much larger scale. Faced with these alternatives the Government have said that they have to find the money in this way. We dare not repeat the mistakes made by the Tory Government. We must turn our backs on the method which they adopted. If we concede that money supply is an important ingredient in a number of economic variables, and if we say that there are limits to the extent that the money supply can be increased, that means that we must plan the use to which our money supply is put to a much greater extent than hitherto.
The hon. Member for Folkestone and Hythe (Mr. Costain) was a Member of this House in the early 1970s. He knows what happened under the Barber boom and where the money went. It did not go into those sectors into which he and I would want it to go—the manufacturing base of our economy. To a large extent it went into the property element of our economy and we had a spiralling increase in the price of real estate, with all the damaging effects that had for ordinary individuals who wished to buy property.
If money supply is an important variable—and I accept that the evidence points to the fact that it is—here is a good reason why we should seek to control the direction and movement of money to a much greater extent than we have done. With respect to my hon. Friends who assisted in the preparation of the Transport House document on banking and finance, that document missed out an important ingredient in the


powers of the banking system, namely the power to increase the supply of money in our economy with the deleterious effects which that can have and which it did have under Chancellor Barber.
As a party and as a Government we must be prepared to intervene, probably to a much greater extent than before, in the workings of the financial system, for the reasons I have given. If we say that the banking system has the power to increase money supply and if we say that the level of money supply and the rate of increase is important, we ought to ask questions about the manner in which the banking system increases the money supply.
Here we come to a crucial variable in banking, and that is the rôle played by Treasury bills. As Conservative Members may well know, when the Government have been unable to finance their borrowing requirements through the non-banking sector, they have turned to the banking system and raised money through Treasury bills. The banking system treats Treasury bills as if they were cash. That enables the banking system to expand the money supply. We must ask ourselves serious questions about the rôle and significance of Treasury bills in the banking system.
My hon. Friend the Member for South Ayrshire (Mr. Sillars) raised the question of the level of investment. I agree that what we need in the economy is an increase in that level. I am worried about the amount of money flowing out of the country rather than being used to promote industrial investment at home.
I was concerned about the increase in interest rates announced by the Chancellor recently. Here is a move which must have a direct effect upon the amount of investment that takes place in British industry. It never was clear for what reason the interest rate was raised. Was it to protect the pound? Was it to control the increase in the level of money supply? Whether it was to control the money supply or to encourage foreign currency to enter the country, the effect of increasing the rate of interest has been to undermine confidence in industry and to make the whole business of investing in industry and raising funds that much more difficult. I hope that we shall shortly be seeing a significant reduction in

interest rates. At their present levels, coupled with inflation, they do not create an encouraging atmosphere in which industry can invest.
We must set the British economy in the context of the world situation and consider the problems of other economies such as those of Germany, America and France. When we do that, we discover very disturbing trends. It was apparent in the early part of this year that there was a growth in world trade; there was a general movement towards expansion. However, those expansionary tendencies have been limited in the past few months and the movement towards expansion has dried up. This must have major repercussions for ourselves and for the rest of the world.
We all hope that, given the statements of President-elect Carter, there will be a significant change in policy in the United States and a move towards expansion. Surely we are entitled to look to countries such as the United States and West Germany, where inflation is under much better control than we have managed to achieve in this country, for some form of expansion of their economies, because if we are to expand and to invest more, and if more jobs are to be provided, particularly in export industries, we must look to an expansion in the economies of other countries.
I hope that when the new President of the United States takes office he will give expression to the expansionist moves which he promulgated during his election campaign. It is clear that unless world trade expands, the export potential of this country will be severely restricted and, if that happens, it will become all the more difficult for us to move out of the present depression.
I note that President Giscard d'Estaing and the President of Italy have suggested the holding of a conference at which Heads of State should get together to talk about the economic problems confronting Europe and that there should be a concerted effort in the West to move the West out of recession, because it is clear that we cannot continue to maintain the present level of unemployment, nor should the leaders of the United States, France and Germany wish to sustain the present level of unemployment. There must be a concerted move forward,


and I hope that my right hon. Friend the Prime Minister will join other European leaders and President-elect Carter to bring about an improvement in that situation.

5.43 p.m.

Mr. Ian Stewart: I appreciate the intricate analysis of the implications of the Bill of the hon. Member for Gloucestershire, West (Mr. Watkinson). He spoke a good deal of sense about some aspects of money supply and the borrowing requirement, about which there is probably not much difference among hon. Members.
I wish to return to the question of the consequences of the announcement of 22nd July. The first thing which needs to be done is to point out the incongruity of discussing the Bill and measures in this way at the beginning of December when they were introduced in July and we are now in the shadow of new economic measures which will no doubt be presented to the House within a matter of days. Therefore, to be discussing the economic and unemployment effects of major financial measures of this kind in a vacuum, as it were—because we are without a great deal of the information—makes it difficult for us to reconcile the figures which have been given to us by the Government since July. I have no doubt that it makes it equally difficult for the Government to answer our questions, but it does not make the questions themselves any less relevant.
We are dealing with measures which were presented in the heat wave of the summer when, with a rosier outlook for the future, it was expected that unemployment would level off and would fall next year and the year after. It was felt at that time that companies in the private sector would be able to stand the addition of a payroll tax—much of which would fall to be paid in the private sector. It was thought that inflation and interest rates would come down and that the situation in the corporate sector of the economy would be different by the time that the measures took effect.
The other night the Financial Secretary reminded us that one of the attractions, if that is the right word for it, of this type of measure—a means of reducing the borrowing requirement—was the

delayed effect so that the impact would not be felt until the economy was in a position to take it and the manufacturing sector was able to take the unemployment effects in its stride.
Naturally, it is on the effects on employment that much of the discussion has concentrated. Even now, after question and answer and comment and counter-comment, I find it extremely difficult to reconcile the arithmetic which has been given to us. In his original proposals, the Chancellor of the Exchequer referred to an overall figure of 60,000 unemployed resulting from these measures, but the way that he put it gave the impression, not that there would be an increase of 60,000 in unemployment, but that unemployment would come down by that much less over a period of a year or two. Of that 60,000, he attributed 10,000 to the effect of the so-called National Insurance Surcharge. However, we rapidly entered rough water, because the Secretary of State for Employment was reported as having quoted the much higher figure of 115,000 as being the likely consequence of these measures.
Opportunities were soon taken by hon. Members to ask questions of the Government and by the General Sub-Committee of the Expenditure Committee to question Treasury officials about the meaning of the figures. I do not think that they were much clearer by the end of it.
First, there was the question of what was meant by a 60,000 change in the level of registered unemployed. If one uses the Treasury forecasting manual, which apparently points out that there is only a 40 per cent. registration ratio for unemployment, it means that, to give a recorded change in unemployment of 60,000, the gross figure would be 150,000 because the "registration ratio" means, in simple language, the number of unemployed people who bother to sign on. So immediately a much larger figure was being discussed.
When the Chancellor of the Exchequer talked about the figures, he said that he thought that they would apply perhaps to early 1978. When he said that, early 1978 was 18 months hence, but now it is not much more than a year hence, and many things have changed. The right hon. Gentleman said—and it was


significant—that the effect could be greater by 1979. He stated:
First of all, the increase in national insurance contributions will affect unemployment with a considerable delay. I have therefore agreed that by, say, early 1979—that is nearly three years from now—the effect could be bigger. But by that time I would expect the period of high unemployment to be behind us anyway. That is certainly the objective of our policies". —[Official Report, 2nd August 1976; Vol. 916, c. 1249.]
It may have been the objective then, and perhaps it is the objective even now, but in practice we all have to face the fact that these projections have not so far given cause for confidence in what has happened since. But the whole of the strategy of the July measures was based on these projections.
Indeed, Mr. Michael Posner, the then Deputy Chief Economic Adviser to the Government—whose name has been mentioned on a number of occasions in the discussions of these measures, and who has an extraordinary way with figures —said that it was important to get control of the public sector borrowing requirement because this was a matter of confidence. He felt that the employment problem would be resolved in a year or two's time and that therefore the effect on unemployment of the surcharge would not be serious.
In fact, he tried to make a virtue out of this, because he said that he thought the announcement in July would be of considerable importance in reinforcing confidence. I repeat that because it is such an astonishing statement. He thought it would be
of considerable importance in reinforcing the confidence about which I have already spoken; an announcement now having an effect if used through time of helping to release resources at a slightly later time in the recovery when we think it should be necessary to do so".
The thinking of those who were advising the Government in the hot days of the summer was that it would actually be necessary to shake out some people from their jobs in order to provide the resources for the economic recovery which was then foreseen. But if the whole prospect now for the level of employment has changed, clearly the figure of unemployment, as well as the financial assumptions on which the measure is

based, must be revised. We have not yet had such a revision.
My mental arithmetic is not very rapid, but if there were to be 100,000 more unemployed next year than had been supposed six months or so ago, if they were not in employment, and therefore no surcharge were being paid in respect of them, it seems to me that it would mean a reduction in the revenue from this new tax of perhaps upwards of £50 million in a full year. That is a quite considerable figure in relation to the net effect on public sector borrowing requirements of £700 million, which the Financial Secretary mentioned earlier in the debate.
With regard to the more specifically financial implications, the Financial Secretary mentioned, as I understood him that there would be a revenue of some £950 million starting in April 1977, and that this would rise to £1,030 million in a full year. How exactly does that work? For those of us who are not privy to the technical details of the raising of this tax, it is a little curious that we have a new measure imposed at the beginning of a financial year and that the revenue in the first year is not the same as the revenue in a full year.
It may be that there is some administrative reason for this, but in a Second Reading debate it would be helpful to have an indication from the Minister of State, when he replies, as to how it works. How exactly is the tax to work? How is it to be levied?
It is in the form of a surcharge on the national insurance payments, but in the Social Security Act 1975, on which this Bill relies, there are pages and pages and schedule upon schedule of technical details as to the way in which the Class 1 secondary contributions, to which the surcharge attaches, are actually to be paid. It would be helpful to have made clear in simple language from the Treasury Bench exactly how this money is likely to end up in the Treasury.
In Schedule 1, paragraph 5, of the Social Security Act, there is power to combine collection of contributions under the Social Security Act with tax. This means that the money would then


go to the Inland Revenue. Paragraph 5(3) states:
The Inland Revenue shall, at such times and in such manner as the Treasury may direct, account to the Secretary of State" —
that is the Secretary of State for Social Services—
for, and pay to him, the sums estimated by the Inland Revenue, in such manner as may be so directed, to have been received by them as contributions in accordance with regulations made by virtue of this paragraph.
Under this new Bill, the Secretary of State has to pay it all back again to the Treasury, in terms of Clause 1(2). I have no doubt that the whole thing will end up in a ledger and that this will be done by book entries. But, as this is a new tax involving a large amount of money, it would be helpful to have a clear statement as to how the money will find its way to the Treasury, and as to the current administrative arrangements, under the Social Security Act, in relation to payment of national insurance contributions when combined with other forms of tax.
Concerning the change in the yield of this tax from July, as it was estimated then, I have a feeling that a figure of £910 million was quoted at that time for the first year, and that now it is now £950 million. Has that figure been up-rated because of inflation or because wage bills have turned out to be higher than they were then expected to be? What is the reason for the change in those figures?
I have no doubt that there is a good reason, but how exactly have we got back to the figure of £700 million for the reduction of the public sector borrowing requirement? It would be helpful to the House, in considering the Bill, to have the information at this stage. After all, there will not be many later stages of the Bill and we have not much time in which to think about it.
Again, how much—I expect that this question ties up with what I have just asked—will be offset against corporation tax? It would be useful to know how much of the tax will fall on companies which would be paying corporation tax on that amount of profit which will not now accrue to them, for the reason that before it becomes profit it will have been

paid in this surcharge. We should also like to have up-to-date information from the Government about the effect on local authorities.
In answer to a Parliamentary Question some time ago, a gross figure of £145 million in, I believe, a full year was quoted, and it was estimated that this would be about £50 million net. It would be useful to have an up-to-date assessment of the figures involved.
In introducing the Bill this afternoon, the Financial Secretary said that this surcharge would be allowable under the Price Code in accordance with existing terms. The existing terms are complicated, and the question was raised in the Ways and Means debate recently as to the effect on retailers. Perhaps the Government would spell out exactly would what would be the position of retailers, and whether under the existing terms they will be able to offset the effects of this charge.
Hon. Members in all parts of the House have today raised one of the most fundamental aspects not from a financial point of view but more from a moral point of view, namely that of charities. I had the experience—one might almost call it a pleasure—of discussing, for many hours earlier this year, with the Minister of State aspects and details of the development land tax. I thought that he made an honourable attempt to defend the dishonourable measures contained in the Development Land Tax Bill, as it passed through the House, with regard to the taxation of gains accruing to charities. It was possible, as he did, to present the argument that the development gain was at least in part provided by the community and was of a special nature, and that there was not much difference whether a charity or any other owner of property or land achieved the amount involved, so that in such circumstances it would not be right to make a special exemption for charities and churches.
But the Minister of State said, in words which have been quoted by my hon. Friend the Member for St. Ives (Mr. Nott), that there was no intention to extend the treatment of charities in this way for tax purposes. The hon. Gentleman intervened earlier in this debate to say that his words did not apply to indirect taxation. Perhaps that is so. But


it is fair to say that the whole tone of the Government's case which he presented on the development land tax was that there was nothing to worry about because that tax was a special animal, and that for administrative reasons it was not possible or right to exclude from it charities and Churches.
Yet here we have, for the second time within a year, an imposition on charities. I believe that this represents a fundamental change in Government and Labour Party thinking about the attitude to charities. In 1966, when selective employment tax was introduced, charities were eventually exempted. The original proposal to tax charities through SET was strongly resisted and in the end they did not have to pay it.
This surcharge is not a selective employment tax but a general employment tax, and surely it is much more important that charities should be exempted from it, and not just because it is a substantial amount of money for the charities to find. For example, £100,000 is a tremendous sum for the Spastics Society to find. Although it is not very much to the Government, it is crucial to the society. How can it pass on the tax in prices? If the Government and the Labour Party wish their claim that they are not slowly but surely undermining the principle that charities should be exempt from tax wherever possible to be credible, they should act on this point.
It is not good enough that we should have to have proposed amendments to these measures passed to Downing Street via Lambeth Palace because we in this House have not the opportunity, in time or procedure, to table the necessary amendments and to debate them on the Floor of the House.
I ask the Government to think again. They are not giving the Bill much time. I was much in sympathy with what the hon. Member for Kingswood (Mr. Walker) said. It would indeed evoke a response in all parties if the Government were to abandon for once the tidy convenience that they claim to be one of the great virtues of the Bill in this method of taxation, and realise that there will be a severe crisis of confidence in the attitude of the Government towards charities unless they do think again, and quickly.
The circumstances in which we are discussing the Bill are fundamentally changed from those which existed at the time these measures were announced. Indeed, I wonder whether it makes much sense for us to be hammering this legislation through in advance of the measures which are now contemplated to be brought before us either next week or at any rate before Christmas.
Let us recall the circumstances in which these measures were announced. There had just been a restatement of industrial strategy at Chequers. The Government, the CBI and the TUC were all to cooperate and to get British industry moving again. But at the last minute the Chancellor found that he did not think that the effects on the public sector borrowing requirement of his thin slice of cosmetic salami in July would be enough, so he said that we must have this surcharge, making it as far as possible in the future so that it would not have an immediate effect. It might not have an immediate financial effect in financial terms if the Government's projections about the economy had been fulfilled, but there is now another factor—the effect on confidence.
At that time, the whole industrial strategy was in the melting pot. It still is. Firms are still waiting for gestures of good faith, sustained over a period, by the Government to show that they really mean what they say—that they want their industrial strategy to work. Mr. Posner has talked about reinforcing confidence. I do not know what sort of confidence the Government think can exist when, having come to a concordat with industry about the future, they impose heavy measures of taxation almost immediately afterwards.
It is equally ridiculous for the House to have to discuss this Bill now when the circumstances in which its measures were introduced have been fundamentally changed and when we know that a sword of Damocles is hanging over our heads in the form of what comes out of the Cabinet wranglings and the to-ing and fro-ing with the International Monetary Fund.
I do not want to sound uncharitable, but I can conclude only that the Government want to muzzle discussion on the Bill. When the July measures were announced, no Government time was


made available for their discussion. The Opposition had to use a Supply Day and the technique of a motion on the Chancellor's salary in order to get them discussed on the Floor of the House. Yet that was for a package approaching £2,000 million, half of it in taxation. Then we had a Ways and Means Resolution late at night, and we have been stampeded into Second Reading without even enough time to work through the technical implications of the Bill, let alone to reconcile the economic and employment consequences. We are to take the further stages within 48 hours, so that nothing worthwhile can be done about the Bill.
When we complain about the consequesnces of these proposals, the Government say "What would you do?" or "They are not as bad as other measures we might take". But they cannot seriously complain of the consequences of their own folly. Up to as late as last July they were staking everything on recovery and boom, which they hoped would get things going. They were wrong. They staked their funding plans on the expectation that there would be lower rates of interest. They were wrong. They staked their hopes for the balance of payments on the value of sterling and the terms of trade. They were wrong. They have been wrong so many times. They have been wrong in the whole of the economic assumptions on which their measures were introduced, yet they have the effrontery to complain when hon. Members point out that those measures are damaging. That takes a pretty thick neck.
The Government have done their best to put the boot in to charities. The Financial Secretary to the Treasury has told us that they have abandoned hope. What now remains? Faith. I am afraid, however, that the country has little faith left in the Government.

6.9 p.m.

Mr. R. B. Cant: I did not intend to speak in this debate. I came into the Chamber because I have a natural curiosity about financial matters, and I ended up being asked by the Chief Whip to speak for at least an hour, for reasons which I cannot fully understand. I feel rather like a biblical

character who went out in search of asses and found a kingdom.
Too much has been made of this piece of legislation. I must confess that the Chancellor of the Exchequer does from time to time persuade me that he is a man who takes a great deal of persuading to do certain things. Yet on other occasions he acts with such rapidity that one feels that the measures he puts forward are something of after-thoughts. Two years ago I suggested that it would be useful to set certain money supply targets for the country. The Chancellor said at the time that this was totally impossible, but now I think that he is with us in spirit on these matters. I got the feeling last July that his decision to impose this National Insurance Surcharge was rather an after-thought, just like, as one of my hon. Friends said, the recent interest rates took many people by surprise.
But we must accept that the whole economic scene is something which is changing far too rapidly for our liking, and changing in the wrong direction. We may say that this is just a back-cloth to much more momentous discussion, and that many things have gone wrong since July. But it is not only the Government who are to blame. If we think of the decline of sterling and the magnitude of the increase in interest rates, we then ask ourselves how this could have happened.
I believe that the financial institutions of this country have a lot to answer for. Why did the Chancellor put up the Minimum Lending Rate to 15 per cent.? This was the obvious consequence of the fact that in July, August and September the pension funds and insurance companies just refused to lend him any money. As a conseqence he had to do something which he did not want to do —go to the banks and start the process of printing money. When some of us who are not on the Left wing of the Labour Party try to answer the criticisms of our more militant colleagues about the financial institutions of the City, it is sometimes a bit difficult. Even The Times asked at one stage:
How much more do these people want?
They could get a yield on long-term gilt-edged securities of 16 per cent., but obviously they were going to put the


Chancellor of the Exchequer neatly across a barrel—if one can imagine that physically—and screw the last 1 per cent. out of him.
The difficulties in which we find ourselves are a consequence of many factors, and it is not up to any of us to start pointing an accusing finger at my right hon. Friend who has struggled with this problem with great courage for a long time.
I see that my hon. Friend the Member for South Ayrshire (Mr. Sillars) has left us. He would say that I am another financial technician making a contribution, but he was right when he chastised the technicians this afternoon and he raised many serious points.
There is the question of the actual impact of the decision to introduce this National Insurance Surcharge on the liquidity of companies. I asked the Financial Secretary to give me a note of this point and he did so. In his reply he said
To the extent that it is not immediately passed forward into prices, the surcharge will temporarily affect liquidity and profits. However the financing prospects for manufacturing industry have been vastly improved during the last year by the lower corporate taxation resulting from stock relief and the relaxations already announced in the Price Code. Firms will have had the opportunity to take full advantage of the new Price Code provisions for nine months before the surcharge comes into effect.
I wonder whether hon. Members opposite are not putting too gloomy an interpretation on the financial data available to us. Of course some of it is out of date, but the latest figures would suggest at any rate, that for the first half of 1976, at £700 million, the financial surplus of the corporate sector is the biggest since the second half of 1972. In fact, there is nothing wrong with the growth of cross-trading profits of companies.
The question is whether we are on target in the corporate sector for reaching the estimated financial surplus of between £1 billion and £1·5 billion. I know that this estimate has been severely questioned by the stockbrokers Phillips & Drew, who say that the way in which national income accounts are drawn up produces an exaggerated effect. This arises from a number of factors such as trade credit, import deposits—if one has

them—income earned abroad which is not returned to this country, or profits which are sent from this country to firms abroad. The fact is that this could have a serious effect on the liquidity of companies.
My hon. Friend the Minister of State knows all about the law relating to taxation and in his mind he has all the figures relating to company liquidity. This is extremely important. If by imposing this tax we are posing a serious threat to the liquidity of the corporate sector, I might find it difficult, despite my great attachment to the Chancellor ideologically, to support him. I am beginning to wonder. Do the figures for the first half of this year show a serious deterioration that implies that serious difficulties will arise for this year as a whole or for 1977–78?

Mr. Parkinson: It is true that profits in the corporate sector in the last year have been quite good. However, that sector faces the fact that stock appreciation relief has effectively stopped increasing. It is at a fixed level. Very little stock appreciation relief will be given this year. Next year companies, which all expect to do worse, will pick up a big tax bill on their current profits. Their work in progress and their stocks will almost certainly be run down, and they will therefore be refunding part of their stock appreciation relief. No corporate planner taking a medium-term view would be too happy about his company's cash prospects, say, a year from now.

Mr. Cant: Coming as it does from the hon. Gentleman, who has a great deal of experience in these matters, that statement must to some extent be accepted. I am simply one of those rather pathetic academicians who depend entirely on reading the printed word, and that does not always convey the truth. So far I have not received the message indicating that the future of these companies is quite as gloomy or as dark as the hon. Gentleman suggests.
Certain events are taking place which might affect company liquidity one way or the other and which we would certainly have to take into account in evaluating our attitude to the Bill. Perhaps my hon. Friend the Minister of State will care to explain them. I do not doubt—and my view is borne out both by the printed


word and by what I am told by business men—that the liquidity of companies is being improved because of the way in which they are reacting to devaluation. In other words, it is partly the case that some firms cannot produce the output that is required and that they are exporting more. This applies particularly to the car industry.
These firms are tending to invoice in sterling and to put up their prices rather than to use the competitive edge offered by a depreciating currency in order to maximise their sales abroad and their revenue. This is an excellent thing if a company merely wants to increase its profits. I suggest that a wide range of businesses in this country are doing this. Any of the things which might contribute to a decline in company liquidity would be to some extent compensated for by this development. Again, we do not know. There is no systematic survey to prove that this practice is happening over the whole area of exporting. It is certainly current practice with a very large number of firms, however.
To what extent are we in a situation in which, I think for speculative reasons, quite a large number of firms are maximising their existing overdraft facilities and engaging in the delightful business of arbitrage? They are using their overdraft facilities with one bank to invest their money in certificates of deposit in the money market. In itself this must make a considerable contribution to the liquidity of the corporate sector, but it is increasing the nation's money supply in a quite artificial way.
What is likely to be the effect on company liquidity by the end of April of companies persistently enaging in the unpatriotic practice of leads and lags? We know that the money supply in this country has increased considerably. We know that at least £200 million of the last monthly increase was due to business men in this country lagging and leading. They were borrowing money in order to buy foreign currencies forward, and they were failing to return some of that sterling to the banking system, leaving their export earnings in Amsterdam, New York, Timbuctoo or wherever. A great deal is going on financially in the corporate sector, and when one adds up

the hundreds of millions involved the sum assumes considerable proportions and it has an effect on liquidity.
Let me turn to the effect of the surcharge on prices. My hon. Friend the Minister told me in his note that it would automatically become an allowable cost for Price Code purposes. This meant
that manufacturing and service industries will be able to pass the tax through into prices. The position of distributors is slightly different, but they will benefit from their mark-up on the increased price charged by their suppplier. Distributors are not given any special relief in the Price Code for employers' national insurance contribution, and since the surcharge partakes of all the economic qualities of the former, it was not felt necessary to make any separate arrangements for the surcharge in the Price Code in respect of distributors.
I should like to know why that is so. It seems to me that the inflexibility of the surcharge is one of the things to be set against it, although obviously a tax of this sort is economical in terms of additional manpower.
In his note my hon. Friend illustrated this inability to use the tax in a selective manner in a different way. He said:
All employers (with a few minor exceptions) pay national insurance contributions in respect of their qualifying employees at the same rate, and the administrative arrangements on to which the surcharge is being grafted therefore make no allowance for variations in rate except for the relatively small categories of mariners and the armed forces.
With his enormous insight into these technical problems my hon. Friend the Minister of State might let us know why that is so.
As other hon. Members have been perplexed by some of the figures which have been bandied about, it might be useful to have an explanation of the reasons why the PSBR is expected to be reduced by £700 million only in 1977–78. One hon. Member asked my hon. Friend why that was so, and I thought that he was brushed off impolitely. I therefore take the opportunity of the Financial Secretary's absence to ask my more friendly hon. Friend the Minister of State for an explanation.
I understand that the figure is £400 million. We are told that the cuts would take £1,150 million but that this sum is reduced by a number of factors. My understanding is that although local authorities will not pay this cost—and as


a local authority man I am very happy about that—only £400 million will be payable by manufacturing industry, and this is likely to be less than 1 per cent. of manufacturing costs. I should like some explanation of that. A suggestion has been made that there has been a change and that the non-service sector will have to pay more.
Some of my hon. Friends have now entered the Chamber so perhaps I should relieve myself and the Opposition of any further contribution from me.

Mr. David Mitchell: The hon. Member for Stoke-on-Trent, Central (Mr. Cant) has indicated to the House that there would be about a 1 per cent. increase in industrial costs as a result of this Bill. Against a background where industries are having considerable difficulties in competing in some markets, does he dismiss that as a matter of no consequence?

Mr. Cant: I understand that the increase in manufacturing costs will be less than 1 per cent. It may be part of the disease from which we all suffer that one regards a sum of less than 1 per cent. as of no account. The hon Member for Basingstoke (Mr. Mitchell) is right in saying that a sum of this magnitude can be considerable in this context.
I hope that when we come to the real debate, when the Chancellor announces the arrangements he has made with the IMF—if that is a better way of putting it than saying the terms that we have had to accept from the IMF—he will not make cuts of the enormity suggested by The Times, which was £5,000 billion, but cuts of, perhaps, £1,500 billion.
Although maintaining the public sector borrowing requirement at its present level by increasing taxes of one sort or another would be a solution to our problems, if the Chancellor pursues this policy and at the same time imposes rigorous domestic credit and expansion of money supply targets, we are heading for an increased level of unemployment which many will find intolerable.
We have moved—as I think The Economist said in a recent article—from monetarism to black box monetarism. I think this is carrying the conversion of the Chancellor to the creed of Professor Friedman too far. I hope that when

the Chancellor comes to the House he will congratulate us on having passed this Bill. I also hope he will create a situation in which the public sector borrowing requirement can be financed at a lower rate of interest that at present. Then we could have a little relaxation of the money supply targets and, perhaps, persuade industrialists to get on with the job for which they exist.

6.34 p.m.

Mr. A. P. Costain: The hon. Member for Stoke-on-Trent, Central (Mr. Cant) was frank enough to say that his Whips sent him in to talk for an hour. He has put up a fine show and I congratulate him. It cannot have escaped the notice of the House that the Government Whips are pushing their supporters into the Chamber two by two as though they were going into the Ark. Perhaps they do not want their own supporters—except in small numbers—to know about the dreadful Bill for which they will vote tonight. This has continued all afternoon.
The hon. Member for Kingswood (Mr. Walker), a Church Commissioner, made a special appeal about the effect of this measure on charities, and I want to expand on that. But having quite rightly said how this Bill would affect charities and Churches, the hon. Member added that he would vote for the Bill and then disappeared. We had a fine speech from my hon. Friend the hon. Member for Hitchin (Mr. Stewart) who dealt with the Bill succinctly. I do not want to bore the House by repeating his important points.
It asks a lot of this House for the Government to introduce such a measure which will cost industry or the public, or both, £1,000 million—a week or two before the expected mini-Budget. This Bill is being rushed through the House. It was printed on 30th November; we have the Second Reading today, and, as my right hon. Friend the Leader of the Opposition made clear during business questions last Thursday, it will be rushed through at such a speed that hon. Members will be unable to take advice from their constituents about points which should be raised.

Mr. David Mitchell: The prospect of hon. Members—some of whom have considerable numbers of unemployed in their


constituencies—consulting their constituents and finding them dead against a measure which would considerably increase unemployment figures may well be the reason the Government are bringing forward this Bill now—so that Labour Members of Parliament cannot consult their constituents. Is this possible?

Mr. Costain: It is not only possible but highly probable. This Bill will particularly affect small businesses, which are the special province of my hon. Friend the Member for Basingstoke (Mr. Mitchell).
We have high rates of unemployment and inflation. What possible effect can this Bill have but to add to both those figures? What will be done by an industry which already faces strict competition and is having to fight for success, when it is told point blank, that it must add 2 per cent. to its labour costs? It will be heartbreaking for an industrialist, who has fought over the years to become more competitive, to export more, and who, after a long struggle, has cut labour costs by 2 per cent., to be told that, although he has done well, 2 per cent. will now be added to labour costs. Industrialists will say that the only way to keep going and to remain competitive will be to reduce their labour forces by 2 per cent. That is the only way to absorb the increase effectively.
An efficient company will decide immediately that, in order to keep up production, the labour force must be cut by 2 per cent. If everybody carried out that policy, there would be a 2 per cent. increase in unemployment and the cost of paying the unemployed would largely offset, if not completely absorb, the amount of revenue raised by the Bill.
I receive letters weekly from small business men in my constituency. In my part of the country most firms are small businesses because of the nature of our planning consent. We have an unemployment rate in my area of 8 per cent.—the highest since the Second World War. We are not a development area and we are given no inducements to offer as an encouragement to industry, yet our unemployment rate is higher than that in many so-called distressed areas.
If each employer in my constituency took on one extra employee, that would

greatly help the unemployment situation. But employers know that if they take on extra workers, they will have to pay a surcharge of 2 per cent. for doing so and, if they are over-optimistic about the number of workers they need, they will be penalised under the Employment Protection Act and have to pay compensation.
Every measure introduced by the Government seems to have precisely the opposite effect to what is needed to deal with our economic problems. Labour Members below the Gangway scream and howl for import controls. The effect of that is that every importer imports all he can before the controls can be introduced, and this has precisely the opposite effect to that hoped for by hon. Members opposite. Those imports will be sold in competition with our industry and will make our unemployment problems even worse.
Do Labour Members not realise the harm they do every time they make such statements? They are obsessed with class warfare. The recent Labour political broadcast did nothing but harm to our economy. Anyone overseas who heard about it would think that Britain was a country ripped down the middle. Hon. Members opposite must get over their hatred and envy if we are to get the country back on a straight course.
I am concerned about the effect of the Bill on local authorities and labour-intensive industries. The Government have said that they will relieve some of the liability on local authorities by making an improved rate support grant settlement in order to offset the cost. I know that my local authority has been making great endeavours to cut expenses, but the assurance that authorities will get more to help them to meet this 2 per cent. surcharge does not seem to fit in with the recent announcement of the first reduction in the rate support grant for many years.
Until about 12 years ago I was treasurer of one of the biggest charities in the country—the National Children's Home. I know that even in those days charities had difficulties in raising money, particularly when cash was tight. Now charities are to be clobbered again by the Government. We have never had anything like this in our history. The Government seem to go out of their way to


make things more difficult for charities. With the difficult economic circumstances, people will not be subscribing as much to charities whose overheads are increasing. This situation can be offset only by a reduction in services.
The Government should realise that many charities are saving them a great deal of money. The NCH was housing 4,000 children and if it had not considered the care of these children—which it did much more effectively and with more love and devolution than any local authority could—local authorities would have faced increased costs. It is little recompense for all this love, devotion and care to be told that charities are to be charged an extra 2 per cent. on labour costs. Charities are very labour-intensive. This is an ill-timed measure which we could well do without.
Hon. Members opposite owe it to their constituents to come into the Chamber and hear the arguments against the Bill If they do not, I hope that their constituents, particularly the unemployed, will ask why they have supported a Bill which will cause more unemployment.
The Government Whip on the Front Bench is waving his hand around pointing to the absence of Opposition Members. But hon. Members on this side know that they will vote against the Bill and they know that there is no argument in favour of it. The Government supporters should be in the Chamber to hear the arguments. We know that it is a stupid Bill and I have heard no arguments from hon. Members opposite to make me change my mind.
There have been references to the Common Market, the economy and to Lord Barber's time as Chancellor of the Exchequer, but the casual references to the Bill from the four Government Back Benchers who have spoken so far are an indication that they do not really support it. Yet they will go into the Lobby tonight and let down their constituents.

6.47 p.m.

Dr. Oonagh McDonald: I wish to make clear that in my comments on this Bill I am concerned not so much about the imposition of a tax on employers as about the effect on employment, labour costs in the public

sector, and prices. I wish to pose a number of questions to the Chancellor of the Exchequer which I hope will be answered tonight.
I notice that the National Insurance Surcharge will increase labour costs in various parts of the public sector. Examples of the increased costs are £145 million for local authorities, £15 million for British Rail, between £13 million and £14 million for the public bus transport services, £60 million for the National Health Service, £60 million for the Civil Service, £21 million for the National Coal Board, £7 million for the gas boards and £15 million for the electricity industry. All these additional costs will be incurred in 1977–78—the first year of the surcharge.
I am concerned about the effect of these increased labour costs. Will the Government write off the costs to the public sector? They have given some answer in respect of local authorities by saying that help will be given from the rate support grant, but it has been left unclear exactly how much support will be given, particularly as the grant for next year has already been settled. Will the Government take on board these additional costs in the public sector?
The Government have said that the revenue will be £930 million in the first year, but the cost of the surcharge can be set against corporation tax and, although I asked today how much the net revenue will be—bearing in mind that the increases can be set against corporation tax—I have not yet received a reply. The Government cannot be sure how much additional revenue will come from the National Insurance Surcharge unless there is an answer to that question in the next year.
The Government estimate that 10,000 people will be made unemployed by the surcharge next Year—1977–78. Two elements seem to have been ignored. First, the Government have no idea how much redundancy payments will cost during that year. That will, therefore, affect the amount of revenue that the Government can expect during the first year of the operation of the surcharge. Secondly, one has to bear in mind that the cost of unemployment is high, and rightly so. If a man or a woman loses his or her job,


he or she is entitled to the benefit now received. For a married man with two children on the average industrial wage the cost will be £50 a week for the first 26 weeks of unemployment. The cost of the measure will, therefore, be high. One must also consider the possibility of unemployment being higher than 10,000 during the first year.
I am worried about the introduction of the Bill. The Government have so far left unanswered a number of questions which I should like to be answered later tonight. I want to know how much revenue will come from the National Insurance Surcharge which will take effect from next year.

6.53 p.m.

Sir Brandon Rhys Williams: This is a bad day in the story of the decline of the House of Commons when a Bill which is intended to raise taxation by over £1,000 million is able to attract for Second Reading an attendance about the same as for a Standing Committee. It is also a bad day in the history of National Insurance when the Government deliberately perverts the principle in order to find an easy way of raising money from the public. National insurance was not intended to allow loopholes for abuse of this kind. We are today setting a bad precedent.
The Financial Secretary spoke with such enthusiasm of this new way of raising money that one cannot not expect it to be abandoned again. One can only wonder why the rate of surcharge is not to be 10 per cent. or 20 per cent. It represents an increase in direct taxation of earnings at the employer's expense. Why have the Government chosen to embark on this course at this moment? No doubt they will say that higher taxation rather than more borrowing is in accordance with the doctrines of orthodox finance. But they do not say why they do not cut some of their superfluous expenditure.
Will a surcharge of this kind help to switch resources from consumption to investment? Presumably one of the Government's major motives at this time is to encourage efficiency and business confidence. The measure will not reduce funds available for consumption immediately and we cannot tell when it will. No

doubt it will reduce pressure of demand when it works its way through the system but that will be in a way which is directly inflationary, because, as the Financial Secretary stressed several times it will be passed on in higher prices. How it can be passed on in higher prices and charges by charities and Churches however, he did not say.
We must conclude that the tax will be paid for by business which cannot encourage business confidence, already so badly faltering. Presumably it is designed not to make an immediate difference in wage rates, but it will make employers more wary of taking on labour again, because it will directly add to labour costs.
When we add to wage-related taxes we contribute to unemployment, and we are now taking a step which will inevitably tend to depress wages. To say that the employer's national insurance contribution is something apart from the total cost of labour in the manufacturing process is only an illusion. With the passage of time if a business is to survive the total cost of wages and national insurance contributions must be lumped together.
This surcharge is a tax which will reduce profits in the short run and damage confidence. It will not be possible for industry to pass on the whole of the extra cost—for instance, where an industry is already facing sharp competition from overseas. In my borough one can see Japanese television sets—in spite of the recent fall in our exchange rate—which are made by reputable manufacturers and which are being sold by well-known houses at £185. I am told we shall soon have Korean television sets being marketed at £150.
How can British manufacturers hope to compete with imports at that price if they are also helping to sustain the Government by paying another 2 per cent. as a wages surcharge? This new tax does not hit imports, but will discourage overseas manufacturers from setting up in this country in the type of business where their goods are finished or assembled and packed by British labour.

Dr. McDonald: Surely the hon. Gentleman's argument is one for import controls and not one against this tax?

Sir B. Rhys Williams: Not necessarily. I am glad to have the opportunity of paying tribute to the hon. Member for Thurrock (Dr. McDonald) for her well-informed speech. I should be prepared to support a system of import deposits, which was tried successfully before but which does not have the effect of controls and quotas, which would inevitably lead to retaliation.
This is a tax which hits British goods but no imports. It is different from VAT, which presumably would also be levied on imported goods. It increases the cost of food which under the British system, VAT does not. Food production is labour-intensive and therefore, to add to the cost of wages the tax will have a differentially adverse effect on the cost of food.
This is not the occasion on which to bring forward figures, which I have at last obtained from the responsible Department, showing the comparison between 1976 and 1970 of the cost of household essentials. If one compares food prices as they affect families with the effect on single people and small households, we find that families are more acutely exposed to inflation. To increase the cost of food bears particularly heavily on families.
Although I have not been able to hear the whole debate, I do not think that hon. Members have made much of the questionable use of the insurance system to raise this money. It is highly objectionable in principle. It confuses still further the direct taxation of earned income and the finance of national insurance. We have never really accustomed ourselves to the new principle in national insurance which was introduced when we went on to earnings-related contributions. Labour Members, and a particular right hon. Lady, have never been prepared to face the consequences of earnings-related contributions and flat rate benefits. We have to look at the finance of national insurance and see whether the anomalies that we are piling on are not such as to smash the whole system altogether before very long.
This whole structure was riddled with inconsistencies even when it was introduced in the days of Lloyd George; but by now the whole system has become so tortuous and so rickety that I truly believe that the only good thing that can be

said about the Bill is that it is likely to bring the end of the present national insurance system a little nearer. That would be a good thing, because we ought to be thinking very clearly what we are doing in the whole field of the redistribution of income.
This Bill has nothing to do with national insurance. The Financial Secretary was being rather disingenuous, unusually for him, when he implied that the money would be raised through the mechanism of national insurance. Am I not right in recalling that the contributions, now that they are earnings-related and we have abolished the stamps, are raised through the mechanism of Pay-As-You-Earn? Therefore, the Financial Secretary should admit that this is a way of increasing PAYE on wages without wage earners discovering that that is what has happened. It is not a question of increasing the national insurance element.
If that had been the Government's bona fide intention, perhaps they might have directed attention to one of the other extraordinary anomalies in national insurance—namely, the 17 per cent. or perhaps 18 per cent. annual contribution which is gratuitously made by taxpayers to the National Insurance Fund for some reason that is completely lost in history. The Government might have been making better sense if they had said that because of the economic situation they were obliged to stop paying that inexplicable contribution. They did not do that. Instead we are to have a two-way movement. National insurance is to receive a subsidy from taxpayers, and beneficiaries, through what purports to be an increase in the national insurance contribution, will pay a subsidy back to the Consolidated Fund.
This argues that no one has given any serious thought to the background of this emergency measure at all and that the Chancellor, finding himself under pressure, has simply grabbed at the first thing that he could think of. It would be better if he thought again and did not press his right hon. and hon. Friends to vote for the Bill in the Lobby tonight.
Unfortunately, all too few members have heard the attacks on the Bill, because those on the Labour side have got into the habit of voting for measures of this kind, which add very much to


the burdens on employers and the public in general, without giving them a moment's thought. But the public will not be ignoring what is happening. The effect of the Bill will be felt. It will be another nail in the Government's coffin.
As to administrative advantages, PAYE is calculated mainly at the employer's own expense. It is not just a matter for the Civil Service but for employers themselves. I do not want to let this opportunity pass without saying once again that the Inland Revenue ought not to depend on employers to do its work for it with the PAYE system.
It was introduced as an emergency measure during the war, when some way had to be found of raising taxes on wages on a current system instead of retrospectively. However, what was tolerable in the exigencies of war—and which has lasted all too long since then—becomes increasingly intolerable when employers are being ruined by the level of taxes which they themselves must calculate and implement on the Government's behalf.
While the Financial Secretary was speaking, I noted that he drew a comparison with the Health Administration and pointed to the emphasis that is placed on lower personal taxation by my hon. and right hon. Friends. He claimed that it did not produce an investment boom under the previous Conservative Administration. The ridiculousness of that argument can be appreciated if we try to imagine instead that we might succeed in producing an investment boom by higher personal taxation. Obviously, if we increase the emphasis of the tax burden on the personal sector, it will not lead to an investment boom; so the hon. Gentleman's argument must have a flaw in it somewhere.
The flaw is that there was an investment boom under the previous Conservative Government but, for another reason, which the hon. Gentleman did not mention, it did not go into manufacturing and expansion, particularly of goods for the export market. That other reason was that, under the terms of the Smithsonian settlement—which I regard as the central tragedy of the last Conservative Administration—we allowed the

pound-dollar exchange rate to be fixed at far too high a level.
The pound was brought into the Smithsonian rearrangement at a rate which immediately attracted imports into Britain. It allowed German, Japanese, American and other importers into Britain to operate at such a level of profit that they were able to establish dealerships everywhere, to build up good stocks, to advertise substantially and to become established in the British market. At the same time, because of the adverse exchange rates, British manufacturers looked for export markets, found that exporting was not fun, could not make profits in exports—and concluded that the whole export performance was an uphill business which did not justify a high rate of investment.
It was the Smithsonian settlement which was catastrophic and which led to the situation in 1972–73, when the credit was made available for investment but went into existing assets—office blocks and the like—instead of the production of goods. However, there was indisputably an investment boom and the Financial Secretary should think again if he is basing his philosophy on the muddle which I hope I have just exposed.
If we failed to take advantage of the opportunities that we had in the early 1970s because the pound's exchange rate was too high, let us not make mistakes on this occasion when the exchange rate of the pound is, according to the experts, now too low. Personally, I venture to doubt whether the fall in the exchange rate of the pound has been overdone. I think it quite likely that it will continue to coast downwards during the whole life of the present Government, because they are not really bent upon taking the measures that will stabilise the economy and restore business confidence. However, I hope that the Treasury's thinking is not so addled and confused that it will continue proposing paltry, wrongheaded measures of this kind instead of taking the measures that are really needed.
The Bill will discriminate against British manufacturers without hitting imports. It will damage business confidence. It will make unemployment more intractable. In the long run it will tend to depress wages. It is a deplorable precedent and it ought to be abandoned.

7.8 p.m.

Mr. George Rodgers: I concede that I find it somewhat melancholy that when I have a deep emotional interest and a mine of information on subjects that are before the House, I find it most difficult to catch the eye of the Chair. However, in today's circumstances it seems that all facilities have been made available.
I have some opinions on this measure. I think that the use of the National Insurance Fund for purposes that are not related to national insurance is something about which we should be concerned. I do not suggest that this instance is unique. Certainly the Road Fund has been used by successive Governments for purposes other than those originally intended. In the case before us the revenue that is accumulated will be funded by the consumer through prices and the bulk of it will return to industry. Now, through Government funds, we are making available to private industry between £9 million and £10 million a day. If that sum is to be passed over to private industry, clearly it must be acquired from some source. No doubt some of the money that becomes available through this formula will find its way back to industry.
I am surprised by the scale of the fallacy that industry will bear the whole weight of the burden. Perhaps not so much here, but certainly in the Press, it is being suggested that industry will carry the burden, whereas in fact the consumer will carry it, through prices.
It is difficult to comprehend the attitude of the Opposition. They simultaneously demand a curtailment of public spending and, in some cases, an increase in VAT. This measure has precisely the same effect. It is an indirect tax, an unfair tax, but certainly nothing that the Opposition say suggests that they are opposed to indirect taxation.
I could recommend to the Chancellor a score of methods for obtaining additional revenue without this Bill. We could have had a wealth tax much earlier and there should have been much tighter control of taxation. The paltry number of prosecutions shows that tax evasion flourishes on a grand scale. Substantial economies could be made on the British Army of the Rhine.
What can be said in favour of this formula? It provides substantial funds without a doubt. The Exchequer will benefit. The method of collection, un-like that for VAT, is simple and straight forward. There will be no substantial on-costs and no great army of bureaucrats to administer it. Successive Governments have rejected the notion that national insurance contributions should be increased to provide greater social benefits. Yet apparently, the Chancellor finds it not only convenient but morally sound to use the Fund for other purposes.
I am not wildly excited by the Bill. When the Price Code is being relaxed, industry is increasingly able to retain profits, and corporation tax has been reduced, I cannot see how industry will be overburdened by this method of passing funds to the Chancellor.
It has been said that charities are being unfairly penalised. I do not dispute this, and it is wrong, but there is some cant and hypocrisy about the charge when in recent days and weeks we have heard from the Opposition a flow of abuse against people who receive social security benefits. Against that background, when charges are made against victims of harsh circumstances who are entitled to their benefits, it is unfair that Conservative Members should suggest that they are so deeply concerned about charities.

Sir B. Rhys Williams: The public are concerned about the abuse of the national insurance system, but the hon. Member implies that there have been criticisms from these Benches of people receiving social security benefits who are in real need. Can he substantiate that claim?

Mr. Rodgers: Yes, indeed. Such comments are made on a wide scale. I accept absolutely that the hon. Gentleman would not personally take that path, but it is common knowledge that people entitled to benefits have been the subject of abuse by Conservative Members, and I deeply resent it.
It has been said that industry seeks confidence from Government and that the Government are doing nothing to provide it. It is this elusive confidence that people find so hard to define. This attitude seems impudent. It is time that some sectors


of industry started earning confidence. For example, Courtaulds and that sector of private industry are prepared to leave a whole town destitute and derelict by withdrawing from the area after having received massive public funds.
However one may feel about the broad method of collecting revenue, the Opposition's alternatives are frightening. There is a campaign among many Conservative Members to slash the social services, to create terrible unemployment far in excess of the unpleasant levels we now have. At the same time, they advocate lavish tax concessions to those who are already prosperous.
It is not enough to decry these proposals unless the Conservatives make their alternatives public. All that we have had so far are hints and whispers of the carnage which will be done to public spending. Faced with that ghastly alternative, my support tonight will go to the Government—not because I think they have a splendid case, but because I see no case at all from the Opposition.

7.16 p.m.

Mr. John MacGregor: My hon. Friend the Member for Kensington (Sir B. Rhys Williams) questioned the hon. Member for Chorley (Mr. Rodgers) about what he said about the Opposition's attitude to social security benefits. Our real concern has been about the interaction between social security benefits and wages—the fact that, below a certain income level there is no incentive to seek a job and that there is real resentment among many people in work at that income level because they would be better off out of work. That resentment is shared among great masses of the population.
We have been joined in this view by the Chancellor himself. He has made two or three very powerful speeches—including one in the House and one in Leeds at the weekend—accepting the point that we have been making month after month. He has said that it is millions of ordinary working people who most resent this situation.

Mr. George Rodgers: Would the hon. Gentleman agree that the level of income provided by social security payments is fixed only at subsistence level and that

therefore the error lies in the low wages paid in some industries and that the remedy lies in increasing wages rather than reducing benefits?

Mr. MacGregor: Many companies cannot increase wages and in many instances, unless the worker's job is changed, they are not allowed to. It is the threshold level at which taxation is now paid that has most of all caused this problem.
The problem facing the Chancellor, now that he has recognised the seriousness of the situation, is that it is immensely expensive to put it right. Unless he cuts public expenditure, he does not have the wherewithal, because of lost revenue, to correct the problem properly in the coming year.

Mr. Ivor Clemitson: Is it not true that many companies do not pay the wage rates laid down by wages councils and that they are therefore breaking the law?

Mr. MacGregor: We are straying rather far from the subject of this debate. That might be right in some cases, but it is also true that many companies are either going into liquidation or having steadily to lose labour because of the effects of costs, including rising labour costs.
I have not been able to attend all the debate because of a Select Committee meeting, but I heard the last two or three speeches by Labour Members. I take the point of the hon. Member for Chorley that some of the increase of this charge can be put on prices, but none of us knows how that balance will come out. I am sure that the Chancellor himself does not know how much will be put on prices and paid for by the consumer and how much will have to come out of a company's net of tax profits simply because it cannot put its prices up—either because of overseas competition or because there is not the consumer demand which would enable it to continue to sell its products if it did. There is a question mark here over how much will be able to be passed on in prices. My guess is that much less will be passed on in prices than the hon. Member for Chorley thinks.
I should like to answer what was said by the hon. Member for Thurrock (Dr. McDonald). I am sorry she has now


left the Chamber. She surprised me by saying that she was not concerned about the effect on employers, but was greatly concerned about the effect on employment. In a number of instances, because of the effect on employers, there will immediately be an effect on employment. I do not see how one can disentangle the two. This is typical of the attitude of Labour Members below the Gangway, who always argue against the effects on employment, against the effects on public sector and public sector employers, but never against the effects on employers in the manufacturing and commercial sectors.
It is fascinating to discuss measures on Second Reading long after they have been introduced. It is not often that we discuss economic measures, which is effectively what this is, in quite this way. It shows how much Government strategy gets knocked cock-eyed month after month.
If we look at the Chancellor's speech on 2nd August 1976, and the reasoning behind the measures he was introducing, we can see now just how much his reasonining was false and how much the situation has changed. Speaking of his measures, including the public expenditure cuts as well as the national insurance contribution measures—I prefer to call them payroll tax measures—he said:
The mixture … ensures that this will be achieved in a way causing relatively little damage to output, employment and the price level. By the end of next year the economy is still likely to have grown faster and unemployment to be lower than we expected at Budget time last April. Moreover the measures will not begin to affect employment until the middle of 1977, when the peak of unemployment will be far behind us." —[Official Report, 2nd August 1976; Vol. 916, c. 1235.]
Since July, we have seen, once again, that unemployment is expected to be high, for a mass of reasons already debated, which the Prime Minister himself now concedes.
We can see that prices will rise much more over the next six to nine months than the Chancellor expected when he made his statement on 2nd August 1976, not least because of the depreciation of sterling since then, which he failed to foresee. Growth prospects and prospects of industrial investment are likely to be lower because companies are likely to be

more concerned about the immediate future, and will be much more cautious about substantial investment plans which would bring down the level of unemployment. We can see that interest rates have gone up, though the Chancellor spoke in that debate of 2nd August of action to prevent raising interest rates
to a level at which industry cannot afford to borrow".—[Official Report, 2nd August 1976; Vol. 916, c. 1238.]
The rates which the Chancellor was trying to keep down then have since substantially increased.
The impact of these measures will now be much greater than the Chancellor expected in July, because the situation has substantially changed. The Chancellor himself, in last week's debate on the economic measures, conceded that the economic statistics showed how much the situation had deteriorated even since October, and not just since July. Once again we have an example of how the Government are boxed in by the errors they made in the first two years of office, by allowing public expenditure to expand too fast and by a wages explosion which had a particular impact on the public sector and which the Government are now trying to damp down.
I prefer to refer to this measure as a 23 per cent. increase. That is effectively what it is, not a 2 per cent. increase. To call it a 2 per cent. increase is rather like a finance company or a hire-purchase company not stating the proper rate of interest before the law was changed. It would now be illegal for such companies to do that. Let us describe the true rate of increase, which is 23 per cent.
This measure, as some of my hon. Friends have pointed out, and I am sure some Labour Members will concede, will add to the lack of confidence in industry. What grieves me is that it is another example of what has happened over the past two years. Because of the mismanagement of our economic affairs, extra burdens have always been laid on industry rather than on the Government's own programmes.
I think I am right in saying that local authorities will receive 60 per cent. back. I should be grateful if the Minister who winds up the debate would clarify this point. There seems to be some uncertainty. I understand that the increases for local authorities were taken into


account in the calculations for the rate support grant, but we do not know whether the increase in national insurance contributions is being wholly given back in rate support grant. If it is, I assume that local authorities are receiving back 60 per cent. of the extra impost on them. However, ratepayers are still being asked to find an extra 40 per cent.
Fast-expanding local authorities have enormous problems of coping with their rapid growth. One example is my own authority, Norfolk County Council, where the population growth is six times the national average. It is astonishing that such authorities should have to try to budget for growth, knowing perfectly well the difficult economic circumstances of the country, to keep the burden on the ratepayers down by budgeting in a responsible manner, and then have the Government put an extra impost on them.
If local authorities are getting something back, industry is not. It will be offset against corporation tax, so in some cases there will be a 52 per cent. saving, but, in many instances, because of first-year allowances, it will be well below 52 per cent. This is a much bigger burden for industry, commercial as well as manufacturing, than it is for local authorities.
Although it is unfair to local authorities in terms of an extra impost, it is also unfair because the Government have not put the case across properly. It would be reasonable to add this extra burden on to employment in local authorities if the Government were saying that they were trying to reduce labour in local authorities or were trying to make it more cost effective. However, the Government are saying the opposite. They are placing this burden on local authorities but do not expect them to lose any labour except through natural wastage. That is not coming clean with the local authorities who are trying desperately hard to do a good job.
Another example where the Government seem hell bent on hitting industry with one hand and with other measures creating unproductivity and short-term measures of high cost is the employment measures which the Government have introduced over the past two years. Many aspects of the Employment Protection

Act and some of the other trade union Acts which have been introduced, aspects, too, of Acts which were introduced many years ago but which are now adding a heavy impost to the cost of labour, like the Redundancy Payments Act, are making companies very careful about taking on extra labour. In one sense this is a good thing because it will ensure that those companies which have a great deal of over-manning will have got rid of it. It will certainly force them to look carefully at the totality of their labour costs.
In another sense, it is yet another measure adding to employment costs of companies and making it much less likely that when they wish to expand they will take on extra labour to the extent that they would have in the past.
I do not think that job creation schemes are any substitute. While they are certainly desirable, they do nothing in the long term to create lasting productive jobs. We could all quote examples. I believe I am right in saying that some teachers who were unable to get employment this year are being employed through job creation schemes to advise other people on how to find jobs. That is a simple and silly example of the way in which the present Government strategy is moving.
A more pertinent example, directly related to the Bill, is the fact that the Government are spending £500 million on job creation schemes to create temporary and unproductive jobs and, yet, on the other hand are taking back £700 million from management, forcing them to shed labour in a way most of us would find regrettable. This approach of hitting industry and then trying to deal with the effects by palliative measures on employment will make the situation much worse for the future. Many companies which in the past one might have thought when they started to expand would take on a substantial amount of new labour will not now do so.
It is no use saying that the public sector can take up the slack, because industry will again have to pay for it and there will not be the funds available to enable the public sector to do so. I find the prospects for getting down the high rate of unemployment rather alarming.
I turn now to the point made by the hon. Member for Chorley regarding how much can be passed on in prices. It will be a matter of guesswork as much as anything else how much will be passed on, because none of us can accurately predict the economic situation over the next 12 months. One sector where there will be little opportunity to pass on this increase in prices is the retail trade. I understand that under the Price Code it may be very difficult to pass on any of the extra costs incurred as a result of this surcharge. Last week, in the Money Resolution debate, the Financial Secretary, understandably at that late hour, did not take up this point and make the situation clear. I hope that he will do so tonight.
The Financial Secretary today shifted his defence of these measures. Last week he put a considerable part of the defence on the fact that most European countries had a higher percentage of national insurance costs than we have. Quite rightly, he did not make that defence today, because it was shot down last week. I am still doubtful about the defence put forward by the hon. Gentleman. Much of it was based on looking at the alternatives which the Chancellor might have faced in July. The hon. Gentleman dismissed VAT.

Mr. Robert Sheldon: The hon. Gentleman is repeating a comment which was made earlier in the debate. I did not find it necessary to repeat everything that I said in the debate on the Ways and Means Resolution, for obvious reasons. The argument that the surcharge bore heavily upon industry needs to be considered in comparison with the burden upon industry, for whatever purpose, which firms in other European countries also have to bear. One must be compared with the other.

Mr. MacGregor: As we made clear in that debate, we must look at the various other statistics of burdens placed upon industry and put the whole comparison together.
Today the Financial Secretary rested his defence to a large extent on the other alternatives and pointed out the disadvantages. My hon. Fiend the Member for Basingstoke (Mr. Mitchell), when arguing about the disadvantage of a VAT increase, intervened to ask whether the

hon. Gentleman was saying that the Chancellor ruled out any intention of a VAT increase as a result of the IMF discussions, and he refused to give a clear answer. I understand that, but the point is that so much of what he was saying in his defence today about the difficulties of alternative measures will look strange indeed if, in the next month, the Chancellor comes forward at least with a package which has some of those measures in it. That illustrates again that the Government are working not on a strategy, but on a policy which is on a hand-to-mouth basis.
The Financial Secretary said that one of the advantages was that this measure would raise the revenue required for our public sector borrowing requirement objectives. That was the 22nd July public sector borrowing requirement objectives. This measure is clearly not satisfactory enough to meet those objectives today. The hon. Gentleman's defence makes sense only if the Government, in whatever package they are about to bring forward, are not proposing to do anything further by way of indirect taxation or taxation on employers. I suspect that, when the measures are announced, we shall find that is not the case.
The more we look back over every speech made by the Chancellor on all the various economic measures which he has brought before the House, the more we see that not once has he got it right. Therefore, because of the errors of the first two years, the Government are in a terrible box. Public expenditure cuts are an absolute necessity, but I fear are likely to be concentrated on postponing capital expenditure because the Chancellor is hemmed in by his own party and therefore unable to do anything else. That will have its impact on industry, on future growth, and especially on the construction industry.
Increases in indirect tax rates and the payroll tax which we are discussing today will depress industry still further. Direct tax cuts are essential to overcome a number of problems, but, because of the high level of public sector borrowing requirement. it will not be easy to achieve cuts on the scale required.
Unemployment is rising and will now be difficult to get down with all the waste of the nation's resources and the


personal tragedies they involve. Before long we shall have to start thinking of what has previously been the unthinkable —namely, whether people who are likely to be unemployed for some time should be put on jobs in the community which they could usefully carry out, which jobs, because of cut-backs in local authority expenditure, cannot be done from official local authority means. That will mean a considerable change of thinking on the part of trade unions.
The Government face a very difficult year and this measure will not make it any easier. Clearly in its impact on industry it will make it worse. It is perhaps a divine retribution on the Labour Party and Government, but it is a tragedy for the country.

7.37 p.m.

Mr. Ted Leadbitter: There are times in debates of this kind when we find the Opposition presenting their two faces. The first is that, when the House of Commons is considering local authority expenditure, they demand swingeing cuts. They maintain that the cuts that the Labour Government are considering go nowhere near to meeting the national interest requirements, whatever they may be and however they may try to describe them, vague and general as they always are. The other face is that, when we produce a measure, no matter how small or insignificant, they maintain that it is damaging to the economy.
One of the great lessons which politicians ought to try to learn and to pursue is to have a philosophy of consistency. One of the great difficulties is that in this House the only thing which is consistent is its inconsistency. I suggest that we should at least honour our pledges to the country by making contributions which show a genuine and sincere concern for the national interest.
In this regard the Government might claim to be complimented on making at least one step towards dealing with the problems of the economy and the need to reduce the public sector borrowing requirement by underlining that one of the objectives is to present a picture of confidence abroad. More than at any other time we should be making it clear

to the rest of the world that we are determined to deal with the endemic problems of our national economy and some of the more serious underlying problems which have arisen out of the highly costly local government reorganisation introduced by the previous Government in 1972.
The Conservative Opposition have blamed the Labour Party and Government for the high cost of local government which the previous Government instituted, and, as recently as last week, they reneged on the devolution policy which they fathered in 1968. Again, we see the two faces of the Conservative Party.
It is not sufficient to congratulate the Government on any approach that they make to these endemic problems by saying that it is totally to be taken for granted if one of the objectives is to produce some state of confidence abroad. It is not sufficient to say that that by itself requires the acquiescence of Government Members. Surely we should examine the proposed surcharge with reasonably keen scrutiny. Will it do exactly what the Government feel it should do—namely, introduce a state of confidence? If that scrutiny exposes weakening effects, those of us who are inclined to feel opposed to the measure will be persuaded to support it only if we are assured that in Committee the doubts that prevail will be removed.
I suggest that the Bill's title is wrong. It is not a National Insurance Surcharge. To put it plainly and simply, it is a tax. Possibly it is the worst possible sort of tax. The basic weakness is already determined in that it is suggested that it will be spread evenly throughout the economy and will not penalise individual sectors. Who has the crystal ball? There is one thing for certain, and that is that the Treasury has never had a crystal ball.
However, it is suggested that the corollary of a minimum level of new taxation spread evenly across the economy is just when we have a diversified economy, different regions with different problems and local government in a state of flux. If I remember rightly, England and Wales were placed in a state of flux in 1972. The same applied to Scotland in 1974. They have hardly had time to reach a state of stability. The social and public


services are not yet through their teething troubles. Therefore, I have a right to ask, if I am to support the Bill tonight, for some assurance in Committee that the thinking that has been imposed upon us by the Treasury will not be assumed to be more important than opinions expressed in the House, which interpret the feelings and differences in various areas.
Although it is only right to expose the contradiction of the Opposition and to accept that it is legitimate to say that there is a need to help the Government to get the economy right and to establish confidence abroad, surely it is legitimate to make the pungent criticism that we must not take these measures for granted because they come from the ivory towers of the Treasury. After all, they come from people who spend their time idling along in their commuting excursions and discussing whether we in this place are as gullible as they think we are. I suggest that the Government must think again, and with great care.
My hon. Friend the Member for Thurrock (Dr. McDonald) produced some interesting figures. As a new Member, she should be congratulated. She outlined the costs of this measure to the electricity boards, the gas authority, local authorities and other bodies. Does not the Treasury understand that one of the most aching problems for many people is how best to meet their electricity bills without imposing further charges next year? Does it not understand that if we are to surmount our major economic problems we cannot be successful if we approach them in this piecemeal fashion?
Would it not have been wiser to wait for the mini-Budget so that the whole issue could be handled in one package, so that people outside the House could comprehend, so that by debate and discussion and by going into the country we could crystallise the salient features of the new strategy, or the bolstering up of the established strategy, to get the economy right? Would not that have made more sense? Sufficient has been said from both sides of the House to indicate to the Government Front Bench that there is a great need to take heed of what Members say, bearing in mind that they represent the people in the constituencies.
I shall take one or two matters at random for the pleasure of passing the time away. It has been calculated that the additional labour costs brought about by the Bill will be an increase of 1½ per cent. and that the additional industrial costs as a whole might amount to a slightly smaller increase.
Of the total revenue of £1·3 billion for 1977–78, about £900 million will be payable by private sector employers and about £400 million by manufacturing industries. Is this the right time to do this? Is it the right amount to impose upon individual employers? Does it do the economy any good? In the hardening of world markets, will employers pay the surcharge or will they agree to let their costs remain at the level they have established by removing from the labour force the value of the surcharge? I suspect that they will choose the latter course.
Can we afford this measure with nearly 1½ million people unemployed? The cost of keeping 1½ million people unemployed is a serious charge upon the nation. That poses the serious question of whether we have reached a stage where it is more costly to keep men idle than at work.
I suggest that it is more costly to keep members of our community out of work than in work. Three examples are teachers, young nurses and new fire brigade personnel. At present we need a wide range of social workers. Why not sack some of the chief officials and reinstate the field workers who are close to the public? That would make sense, but this measure will not bring about that result.
If there has to be this surcharge upon local authorities, why will the authority in Hartlepool and the county authority in Cleveland—

Mr. Leslie Spriggs: Is it not Hartlepools?

Mr. Leadbitter: No, we took off the "s" in the local government boundary recommendations. What is in an "s"?
My two local authorities have worked had to ensure that there will be no growth in expenditure during the coming financial year. This Bill will impose a great hardship upon them because they will have to tell the electorate that there will be more unemployment and fewer teachers


and nurses. The hierarchy, the well-paid, will not lose their jobs. Local councillors will get the blame for what we do. That is the forecast for May of next year if the Government do not re-think their approach to the strategy policy, which I would like to support.
I say that we should deal with our strategy for the economy in a way that is understood by the public at large and not in a piecemeal fashion, as we did last week when the Government introduced a Bill to save a measly £14 million and which deprived those who had paid superannuation contributions of part of their pension if they received above £25 by way of earnings. It is a waste of time for Members of the House and civil servants to operate in this way.
I have mentioned civil servants and I wish to be highly complimentary about them, which is a change for anyone in the House of Commons. I have a high regard for them. It does not, however, do them much good if we say that there will be no cause for any further increase in the Civil Service as a result of this Bill yet forget that the devolution Bill will increase the numbers of civil servants by 1,000 in Scotland and about the same number in Wales. Again, there is the piecemeal approach. We must remember those who have to administer these schemes. Some notes on the Bill make the comment that when the increase it proposes moves into prices it will lead to a temporary squeeze in profits and on liquidity. There is the observation that this effect will be temporary. Has anyone in this House ever known "temporary" to mean that?
Circumstances and conditions change. It is no good saying that an increase brought about by this measure will have a temporary effect on profits or prices. This gives the illusion that it will nip hard for only a short time. We know that in an inflationary situation there will be price rises next year anyway. People will not be able to measure that part of them attributable to this Bill. All that the public will know is that prices have risen and that this Bill was one of the contributory factors.
I have spoken about the effects of this Bill on the economy as a whole. I conclude with some observations on the areas

which I believe have not been helped by our regional policies, at least not during my 25 years in public life. I do not suggest that nothing has been done. I do say that the difficulties in our regions still persist.
In my area, an industrial constituency, we have 4,200 people out of work now. Recently we lost 1,800 jobs. Since January there has been an increase of 1,600 in unemployment. Unless someone is forceful enough to change the policies of the British Steel Corporation—and I shall bend my efforts in this direction—and prevent the closure of the steel works in my area, more workers will be made unemployed. We are running towards 20 per cent. unemployment. I am afraid that this measure will create further hardship in my area. That is true also of Merseyside, Wales, Scotland and other parts of the country.
I shall support this Bill tonight because I am satisfied that there is a choice only between the Labour Government and the Conservatives, and I have already discarded that lot because they want to get out the axe. They want to cut the thing to ribbons.
My criticism of the Government Front Bench is that they are not pacing this measure correctly. They should stop doing things in a piecemeal fashion. I put it to the Government that they obtain my vote only on the basis that they will inform the relevant Secretaries of State of the need to stop this piecemeal approach. I seek the assurance that when the Bill goes into Committee the Government will be flexible and will listen to our amendments aimed at mitigating some of the damage contained in the Bill.

7.57 p.m.

Mr. Cecil Parkinson: The hon. Member for Hartlepool (Mr. Leadbitter) began his speech—which I must say did not bear the hallmarks of the well-prepared speech that we usually hear from him—by accusing the Conservative Party of presenting two faces to the public. At the end of his speech he laid down a series of conditions which would govern his support for the Bill. He asked for changes in Committee, something which he knows will not happen. The hon. Member made a good speech explaining why this is a bad


Bill. Then he said that we would support the Government. People who live in glass houses should not throw stones. The hon. Gentleman revealed his two faces during a 15-minute speech.

Mr. Leadbitter: The hon. Member knows that in Committee alterations are made to Bills. It has been my pleasure to serve on several Committees when changes have been made. I have withdrawn my support if they have not been made.

Mr. Parkinson: Once again, that will read very well in the Hartlepool Gazette, as the hon. Gentleman knows. A lot of his speech will read well in the Hartlepool Gazette. I do not cast doubt on the hon. Gentleman's motives but much of his speech was distinctly aimed at the Hartlepool Gazette, if there is such a thing.
The Government have hit on a new tack on their approach to imposing fresh taxes and policies. When, last year, they had to introduce a prices and incomes policy we did not have a Prices and Incomes Bill. We had a Remuneration Charges and Grants Bill. But it was a Prices and Incomes Bill. Today we have this Bill, innocuously titled the National Insurance Surcharge Bill. We all know that it is a payroll tax Bill. Why do not the Government, as a beginning to their policy of introducing the nation to the economic facts of life, start by putting the true name on the measures they introduce?
There is a surprisingly broad area of agreement about the Bill. We agree that it will cost £1,000 million. We agree that, initially at least, the cost will be borne mainly by the private sector. Later, as the Minister explained, the private sector will be allowed to pass on the additional costs to its customers via the Price Code; but he made a point of explaining that this tax has been introduced because, unlike VAT, it would take some time for the price effect to work through. In other words, the Price Commission will not let the expenses through quickly. Companies will have to wait quite a long time for permission to increase prices to reflect the cost.
However, although it may be true that the effect will work its way more slowly through the cost of living index and

the cost may be borne by companies initially whereas under VAT it would be borne straight away by the consumer, it has some very unpleasant implications. The distributive and retailing trades will add this tax to the cost of food and all other essential services which, under VAT, are zero rated.
Therefore, this tax—and I hope that hon. Members opposite realise it—will reflect itself as a tax on food and essential services. This is the other side of the claim of the Financial Secretary that, unlike VAT, it will not work through to prices so quickly. It will work through to the prices of essential goods which old-age pensioners, for example, will be buying. A whole range of expenditure which, under VAT, would not have borne an increase will be hit by this proposed tax.
Everybody agrees that the proposed tax will affect jobs. According to the Treasury, 10,000 jobs will be lost. It was rather cheeky of the Financial Secretary to say that that was the only intellectually credible estimate available. Few of us accuse the Secretary of State for Employment of being an intellectual, but he put a figure of 110,000 on this. Nobody, to the best of my knowledge, has doubted the right hon. Gentleman's credibility, although some might have doubted his intellect. Therefore, there is a clash between two Departments, and all the Financial Secretary can do, when we ask him to explain which of the figures is right, is to say "intellectually our figure is much more credible".
The Treasury has produced many figures in recent years which might have been intellectually credible when produced but which have turned out regularly to be staggeringly wrong. The Government claim that the Job Creation Programme has cost £500 million and will produce about 70,000 jobs. Therefore, the suggestion is that a charge of double that figure will have an effect nearer to a loss of 100,000 jobs than 10,000 jobs.
It seems to be agreed by hon. Members that jobs will have to come from the private sector via the so-called regeneration of British industry if they are to come from anywhere. There are bound to be public sector cuts which will have effects on public sector employment. Every nationalised industry has redundancy


plans. When the Aircraft and Shipbuilding Industries Bill eventually gets through the House, there will be a considerable number of redundant shipyard workers. Therefore, the Government agree, and we agree, that any increase in the number of jobs will have to occur in the private sector.
I accept many of the arguments adduced by the hon. Member for Hartlepool about the deficiencies of the Bill, but the one which stands out above all others, and the reason why the House should consider carefully whether it should give the Bill a Second Reading, is the fact that it will damage employment prospects in the private sector; and we all agree that if there are no new jobs in that sector there will be no new permanent jobs. This is my principal criticism of the Bill.
The Bill is very much in keeping with the Government's approach to the private sector and private enterprise generally. The Government are loud in their praise of private enterprise. These days, the Chancellor of the Exchequer and the Prime Minister never miss an opportunity to say that they believe in the mixed economy, that the private sector is important to Britain, and that they are totally committed to profits to regenerate industry. But let us look at their actions. If one believes in the private sector and in the mixed economy, one must accept certain aspects of private industry. One must accept that private industry must make a good return on the capital employed. It must make good profits if money is to be ploughed back into new equipment and jobs.
Do the Government allow the private sector to make profits? In the review of the Price Code this year the Government made relaxations which will increase the net return on capital employed from about 3 per cent. to 4 per cent. The concessions made in the Price Code allowed industry to increase its rate of return by 1 per cent., which is negligible. I accept that this is slightly simplistic, but who will borrow money at 18 per cent., with all the risks it involves, and with a world recession on the horizon, or certainly in the absence of a world boom, and the prospect of a net return on capital of 4 per cent.? Therefore although the

Prime Minister pays lip service to profits, when he has the chance to do something about them by relaxing the Price Code he refuses to do it.
The Chancellor of the Exchequer makes speeches—we heard another one last weekend—in which he says that the squeeze on differentials in industry is too severe. The Financial Secretary has said that the difference between the highly paid and people on average earnings in industry is in a proportion of about 4 to 1, which is less than it is in Iron Curtain countries, including China. The Financial Secretary and other Ministers say that the salaries of British managers have been squeezed. But have the Government done anything about it? Such people have had their standards of living viciously attacked by the Government, who have effectively frozen their salaries for nearly three years and have piled on the taxes. Therefore, when it comes to allowing the successful to enjoy better results than the unsuccessful—an inevitable part of the private sector in which the Government say they believe—the Government pay lip service to the notion but by their actions prevent the successful from enjoying more than the unsuccessful.
The Government talk about the need for investment. We accept the need for investment. But investment needs investors, and the Government will not accept the need to pay dividends to investors, because dividends remain virtually frozen. The tax on dividends can reach 98 per cent. Therefore, although the Government say that investors and investment are needed, instead of encouraging them they do exactly the opposite. Through the tax system and dividend controls, they discourage investors and thereby investment.
The Government say that more resources must be released to enable the private sector to invest. They say that they must cut their take of the gross domestic product so that more is left for the private sector. But then the Chancellor of the Duchy of Lancaster goes to the City and, lo and behold, before we know where we are there is a new tap stock on offer at 16 per cent. The Government say that they are desperately anxious to release resources for the private sector but are busy offering interest


rates which the private sector cannot afford to pay and mopping up every available investor's pound they can find, including the money which until recently has been finding its way into the hands of the building societies.
There will be substantial unemployment in the building industry next year and an almost total collapse of the private housing programme. It must not be forgotten that in ordinary times the building industry employs 1½ million people—three times as many as the steel industry and the coal industry put together. Yet it is having a major squeeze applied to it. There will be tens of thousands more building workers out of work this time next year than there are now. This measure will not be any help to the construction industry where prices are lower than they were last year and there is immense competition for work. There is no means by which this increase can be passed on in the building industry. This tax will make job prospects in the building industry much worse.
The Government talk of the need for profits, of the importance of the investor, of the need to release resources, but they are doing exactly the opposite of helping in those three areas. Time after time the Government talk of the importance of small businesses. Whatever is said about big companies, small busineses are "in". The right hon. Member for Bristol, South-East (Mr. Benn) always exempted small businesses from his criticisms. The hon. Member for Liverpool, Walton (Mr. Heifer) always leaps to his feet and makes a plea on their behalf.
I am sorry to be speaking in the absence of the hon. Member for Walton, but I do not intend to be personally critical of him. He believes in small businesses, but not in their growing. He has no sympathy with the man who starts a business and builds it up and as a result generates personal wealth. He regards that as anti-social. He is in favour of the idea of small businesses, but he resents the end result of running a successful small business.
The same is true of the Government: they have no sympathy with private industry. By the capital transfer tax—a confiscatory tax—the Government ensure that there is no joy for anyone who

has struggled through this maze and climbed over a series of obstacles and finally reached the other end. If he has survived the obstacles on the way of being overtaxed, of not being allowed to invest, and a whole range of other restrictions and finally built up a successful business, at the end the hon. Member for Walton says "This is where we come in. This business belongs to us and our tax system will ensure that we take it away from him."
How can the Government claim that they believe in the private sector and the mixed economy when they consistently do things that militate against them and refuse to accept the end result of the private sector, which is that the more successful will have greater wealth at their disposal than the less successful? The Government do not accept that. It is time that they stopped pretending that they believe in the private sector.
I was depressed to read today that the Trades Union Congress and the Government are to set up a joint committee to study the question of the introduction of a wealth tax. There is no need for them to do that. They can read the report of the Select Committee on a Wealth Tax and remind themselves why the Government chose not to introduce it this year. The truth is that it is a very expensive tax to administer. If the yield in the early days were to be negligible, it would probably be a claim on the nation's resources rather than a contributor. The administrative costs would be stupendous. It would take a long time to set up such a tax.
Does anybody think that today's announcement will do anything to strengthen the confidence of industrialists and of small business men? The Government are constantly telling people "We believe in you. We know that you have the answer to our problems, but we intend to ensure that you do not use your talents to solve them."
I oppose this Bill, for a variety of reasons, but chiefly because it is further evidence of the Government's hostility to the private sector. It represents a further harassing and squeezing of the sector on which the Government and the nation depend for recovery. It is a deplorable Bill and I shall vote against it tonight with enthusiasm.

8.15 p.m.

Mr. Ken Weetch: For the purposes of this debate I do not believe that a volunteer is worth 10 pressed men. Conscripted armies in Britain have always put up a very stout performance.
In making this speech, I have the advantage of following my hon. Friend the Member for Hartlepool (Mr. Leadbitter). I had the pleasure of listening to his rather unusual analysis of the economic and industrial situation. As I listened to him, I concluded that he will not receive the Treasury award for orthodoxy. He has forfeited that inevitably.
My right hon. Friend the Chancellor has said that the long-term aim is the regeneration of British industry. In facing that problem, he grapples with longstanding difficulties. There was a period in Britain's economic history when our industry led the world, but I regret that that was because we had started first, and for a time we had a monopoly position. From about 1870 onwards, we have gradually been losing against our competitors. In fact, vis-a-vis the nations of the industrial West, as I will call them—I include Japan—we have gradually been becoming less competitive. My right hon. Friend the Chancellor is trying to reverse a very long-term industrial decline.
Manufacturing industry, with the devaluation of the currency, has exceptional opportunities to make an advance in exports. The greatest threat to this is not the 2 per cent. surcharge as a charge on industrial resources but the high rate of interest which must be faced by industrialists on their borrowing. A minimum Lending Rate of about 15 per cent. is not compatible with any sustained industrial advance. The two do not go together. For a person who has to borrow at between 16 per cent. and 20 per cent. the prospect is daunting. A person who finances borrowing from his own resources is faced with the fact that it is more profitable to buy medium-term paper than it is to erect buildings and bring in machines. As a precondition of any industrial advance, the Minimum Lending Rate of about 15 per cent. is a very great obstacle. One of the first objectives in an economic policy must be to reduce that rate of interest as quickly as possible.
My hon. Friend the Member for Hartlepool made some interesting points about public expenditure. If I understand him rightly, what he is saying is that all public expenditure is not good public expenditure. We must discriminate.
I believe that there could be significant savings in public expenditure without doing damage to anybody. When I look up and down this land at the area health authorities, I wonder what most of them do all day. As a result of local government reorganisation, institutions have been constructed which are not cost-effective to any extent, as they were promised to be. Indeed, there is duplication over a wide field where decisions have to be made. I am not saying this only as a result of my own observations. People, often with party cards, come in and tell me every day that there is waste in various sectors of public expenditure. There is no question about it at all.
The first monument of bureaucracy gone wild is the Act to reorganise local government. It was a piece of monumental folly. It was promised that we should have more cost-effective local government. We have nothing of the kind. Unfortunately, we do not seem able to alter it. Having already stirred things up once, I am told that we have to wait for the dust to settle before we can do anything about it. The next such monument is the Act to reorganise the National Health Service. The framework of that public service can be looked at pretty critically in terms of public expenditure.
I am a strong believer in the mixed economy. I also believe—contrary to some of my hon. Friends who are sitting below the Gangway—that a public sector borrowing requirement of the size we have now is actually a threat to industrial advance. I hear of a public sector borrowing requirement of £9,000 million, £10,000 million or £11,000 million. Those are quite striking figures.
I know very well that in a time of industrial depression, when there is unemployment, the public sector borrowing requirement is bound to be higher than it would normally be. But if we are to finance a public sector borrowing requirement of that size year in and year out, we shall have to do one of a number of things. First, we may have to print


money, if we are not careful. Secondly, we can try to finance it through taxation, direct or indirect. Thirdly, we can try to finance it through borrowing.
The main thrust of my right hon. Friend the Chancellor of the Exchequer seems to be that we borrow in the medium term to cover this deficit. In pursuing a policy of that nature, we create a greater demand for loanable funds in the market place, and thereby force up rates of interest. When the Treasury issues tap stock of one denomination or another at high rates of interest, there is immediately some fallout in other sectors of the economy. The first thing that happens is that mortgage rates go up to 12¼ per cent. Secondly, we have to pay a high rate of interest in order to finance stocks of goods and industrial machinery.
Taking a macro-economic view—to use a terrible term—I believe that monetary factors play a very substantial part in the economic difficulties that we face today. That does not bring any comfort to the Conservative Party, because much of the inflationary difficulty that we now face—and faced in 1974—can be directly related to the fact that Chancellor Barber lost control of the money supply in 1973.
If control is lost of the money supply, as measured by M3, in 1973, given a time-lag it will work its way into the price level, and that is precisely what it did in 1974. Therefore, on a monetary analysis, I do not think that there is any comfort at all for the Conservative Party.
If we are to finance the public sector borrowing requirement through taxation, industrial companies in Britain must bear some of the burden. They must help to finance the adjustment that has to be made. I believe that a massive increase in direct and indirect taxation has to be avoided. On the other hand, there will have to be some tax relief at lower levels of income, because we cannot continue with a situation in which it pays some people to stop at home rather than work. There will have to be some tax relief at lower levels of income, otherwise there is a substantial disincentive.
I said that a massive increase in direct and indirect taxation had to be avoided. Instead, two percentage points were added

to the national insurance contribution, and this will take effect from April next year. I understand that the yield in the financial year 1977–78 will be just over £900 million, and the yield in a full year will be just over £1,000 million. Well under half of this will come from manufacturing industry.
I take the point that if we are to have a high level of public services in this country—good pensions, modern hospitals, and all the rest of the infrastructure of high public expenditure on social services—the engine or the animal which has to carry this burden is manufacturing industry. Manufacturing industry has to create the wealth, in my view, before we can spend it.
It is no coincidence that other nations in the world with high levels of pensions and social security provision usually have a prosperous manufacturing industry. I readily concede that point. On the other hand, a moment ago I referred to the necessity of trimming in some way the public sector borrowing requirement. The Chancellor of the Exchequer was able to raise £700 million with the two percentage points on national insurance contributions. I understand that the addition of the two percentage points will be an allowable cost for the purposes of the Price Code.
A short time ago I went on a three-week intensive visit to industry in Ipswich. In my constituency the biggest employer is the engineering industry. I made a direct point, at every firm I visited, of asking what were the problems facing it in its efforts towards industrial advance. Oddly enough, this visit was made at the time when my right hon. Friend the Chancellor of the Exchequer had made his announcement concerning the two percentage points. I went through all the largest manufacturing enterprises in my constituency and asked them what were their problems. Not one of them referred to the two percentage points on national insurance contributions. These firms mentioned problems galore, but the substantial one was certainly not the national insurance contributions.
The addition in insurance costs will come at a time when profitability in British industry as a whole is rising and will rise, and when the Chancellor has, as I have been told from every quarter, given enormous benefit to industry


through stock relief. One must take these factors into account, and accept that the Government were boxed in and had before them a small range of options, all pretty painful because, wherever one looks at public expenditure with a view to getting reductions, there are harmful consequences.
The hon. Member for Hertfordshire, South (Mr. Parkinson) said that the Bill would hit employment in the public sector. The import of his remarks was that if he wished unemployment on anybody, he wished it on the public sector. In fiscal terms, there is some advantage in the surcharge, in that, if one is to raise any money by taxes at all, a move towards indirect taxation has less of a direct effect on the retail price index, and I understand that the increase in prices which will come about from the surcharge will be gradual, the full impact not being felt until early 1978.
Nevertheless, I understand—and looking at it rationally, I think that there is something in this—that this tax, as my hon. Friend the Member for Hartlepool described it, calling a spade a spade, has the advantage of raising revenue quickly, together with a considerable ease of introduction and administration. I do not think very much of a tax where thre is considerable administrative cost before one starts to realise revenue.
I want to point out a comparison in national insurance contributions between Britain and other industrial countries. It is statistically correct to say that most other industrial countries have national insurance contributions which bear more heavily on employers than anything we have, even including this surcharge. For example, in West Germany, social security payments by industry total 14½ per cent. of the wage and salary bill, in Belgium, 14½ per cent., in Italy 18 per cent. and in France 22 per cent. In Britain, it is under 5 per cent. Britain does not come off badly when social security contributions are seen as a percentage of tax revenue as a whole. In those figures, the social security contributions in Italy amount to 33 per cent., in France, 32 per cent., in West Germany, 21 per cent. and in the United Kingdom, only 9½ per cent.
I am arguing that if one is to raise £1,000 million in taxation in order to reduce some of the impact of a large deficit in the public sector borrowing requirement, this way is less damaging than most of the other options open to us, given the disadvantage, which I accept, that an additional burden on industry is involved. Far from this being the omen of disaster, it is a rational way of raising money to finance the public sector borrowing requirement. But at the end of the day, that does not relieve us of the responsibility of cutting out waste in the public sector where it occurs. There is no painless way out of these difficulties but the surcharge is a more painless way than most.

8.35 p.m.

Mr. Esmond Bulmer: When I asked the Secretary of State for Employment what advice his Department had tendered the Treasury about the effect of the Bill on employment, he was either unwilling or unable to give a coherent answer. I understand that he has said elsewhere that the effect could be about 115,000 jobs. Clearly, we could talk all night about what the real impact might be, but the only certainty is that we have no way of knowing. All that is clear is that if £400 million is taken out of manufacturing industry now, there will be fewer jobs. That is my first reason for rejecting the Bill.
I also wish to probe a little further into just what consultation does go on between the Departments, particularly between the Department of Employment and the Treasury. When I asked the Secretary of State for Employment what advice he had given to the Treasury before the Government introduced the 25 per cent. value added tax, again I got a wholly unsatisfactory answer, to the effect that it was a matter for Customs and Excise. When I asked Customs and Excise, I was told that it had not been asked to provide any information. All we know is that a lot of jobs were lost and that within 12 months the Government had to go into reverse.
I do not know how the Treasury carry out our affairs, but on the basis of the last few years there is clearly room for improvement. I join the hon. Member for Hartlepool (Mr.Leadbittter) in some of his strictures. This Bill appears to


me to be a typical, neat, intellectual answer to the short-term problem of how to raise a certain sum, but I do not believe that it has been thought through. I remain to be convinced that the Treasury and its Ministers, speaking for a Government who express concern for jobs, really take jobs into account when doing the national housekeeping. A great deal more could be done.
The hon. Member for Ipswich (Mr. Weetch) was almost asking for an employment audit. A great deal of Government expenditure does not really take account of the quality of employment, and a great deal of departmental thinking ignores employment completely. For example, in my constituency recently, when it was a question of how we linked an industrial estate with a trunk route, it was clear that the civil servants in the Department of Transport were wholly concerned about safety factors and that it was outside their brief to consider employment factors. They were not, it seemed to me, as concerned as perhaps they should have been to arrive at a compromise. I hope that the Minister will give us an assurance that will go some way towards allaying the fears in all parts of the House and will say how that employment is taken into account properly when the Treasury considers measures such as these.
In my constituency unemployment has risen by one-third in the last 12 months. That is the highest unemployment we have had since the year. In that situation it is inevitable that any Member of Parliament should wish to probe the underlying factors. I have talked to, visited, or written to all 51 of the major employers in the private sector in my constituency. They told me that over the last two years 28 of them were employing fewer people than they were two years ago, 15 were employing the same number, and only five were employing more. Three had gone bankrupt.
My constituency relies heavily on the carpet industry. One-third of all those employed depend on this industry in one way or another. It is perfectly clear that over the next five or six years there will be technological changes which will mean fewer people being employed and more machinery being needed. More machines may create more jobs, but these will be outside the constituency. In Kidderminster

we do not know where new jobs will come from in the next five years. If they are to be self-generated, this can be done only through the expansion of existing business or new business.
The hon. Member for Ipswich said that large companies to which he had talked had said that this increase in the stamps was not critical. I do not argue with him —obviously he is correct. But our small and growing businesses must look at this in the context of all the other burdens which have been placed upon them in the last few years. These burdens are considerable and growing, and in some cases they threaten to become intolerable.
We have had a 40 per cent. depreciation in our currency. This means that any small or growing business dependent upon buying in materials has to find that much more money for materials. Wage levels have gone up without any regard for the wealth generated. As a nation we pay ourselves almost 60 per cent. more than we did at the time of the three-day-week, yet we are producing only 5 per cent. less. With that sort of arithmetic put against a small business competing with local authorities or large businesses, one can understand that the burden is not one which is easily met.
Then, there is the burden of rates, which have doubled or even trebled for some unfortunate companies. In 1974 the Government altered the basis of the rate support grant for our part of the world. They are about to do so again. This will create a further burden.
The Employment Protection Act contains many worthwhile proposals but my criticism of it was levelled at the speed at which these proposals were introduced and the lack of thought about the impact that they would have on small businesses. We are now seeing the cost of making that mistake. The cost, if someone is taken on who proves unsatisfactory, is far too high for small businesses and it is acting against the young person or the high flyer. A company often will choose an older, more experienced person instead of a younger person because it feels that it cannot justify taking a risk.
All businesses have suffered from too much legislation. One figure that I saw recently claimed that there were 2,600 pages of legislation from the last Session, and a great deal of this was concerned


with industry. No one running a small business can cope with this volume of legislation. How many people in this House have read more than a small fraction of the legislation? It is only when a business is hauled over the coals by some new inspectorate that it realises that a law has come into being. Large companies can employ staff to keep track of this legislation, but small companies cannot afford to do so.
We have had changes in VAT as well. How many people in the Treasury really understand the burden imposed on small businesses filling in forms and so on?
Inflation is a really crippling factor. A business with working capital of £100,000 is having to find an extra £40,000 and the rate of interest charged on £40,000 is another £8,000. How can small businesses find that sort of money? How can even medium-sized businesses find that money today? They cannot do so. If the owner of a business compares a return based on his working day and night with closing down and putting his money into Government paper, he must ask himself whether he is mad to carry on.
All these burdens exist on the small and growing business. But let us suppose that in spite of all that an individual proprietor persists in the belief that one day he will create something which will be of value for himself and his family. What is the prospect before him? The immediate prospect is of dividend control. I wonder how many members of the TUC have thought this through. It is they who argue for it. I do not think that the Treasury wants it. The immediate impact of that control is so to depress the value of many company shares that the larger company is better off taking over a smaller company than putting the money into plant and equipment.
The control also operates unfairly against private sector pensions. It allows overseas interests to buy our companies far too cheaply, and it seems economic nonsense to argue for a wealth tax in addition to the existing penal capital transfer tax and capital gains tax. If the TUC really is interested in the creation of jobs it must begin to understand the wealth-creating process.
On top of all these burdens there is to be a 23 per cent. increase in the employer's

stamp. That has to be seen in the context of all the other burdens. Perhaps the Treasury will say that since all these businesses have borne so much, it proves surely that they can carry more. Was not that the mistake made by the Stuarts and the Bourbons and all the profligates down the ages? The determination to spend above one's income, allied to a belief in the divine mission to do so, which was what we saw at the Labour Party conference, seems to make disaster inevitable.
I see no chance of jobs being created while the Government maintain their present strategy and their present psychology. It is not wholly the Government's fault that there has been a shift from manufacturing industry. As we all know, it is a deep-seated problem. Over the last 10 years 200,000 jobs a year have been lost in manufacturing industry. It is not good enough to say that the Bill is not damaging. If we are to recreate our industrial base, we have to put long-term before short-term, accept lower standards of living, and create before we can spend. That means that there must be much less interference with industry.
There must be a period when it is possible for a company to plan in the long term, to have some understanding of what the rate of inflation might be, and to feel confident that the decisions it makes will not be invalidated by changes in Government thinking every two or three months. In addition, we need a tax system more in line with the systems operated by our successful overseas competitors.
If we had these things confidence would return and jobs would be created. I shall certainly vote against the Bill because it does nothing to bolster the confidence of the country's wealth-creating sector.

8.48 p.m.

Mr. Leslie Spriggs: The House of Commons, industrialists throughout the country, people who are unemployed and others who are afraid of what might happen to their jobs will be frightened to death, I believe, by Clause 1(1) of the Bill. Most of the small industries, especially those in my constituency, are suffering from a lack of liquidity. No matter how urgently the Government requires money, there is no sense or purpose in squeezing more


money out of industry that cannot afford it. There is no use in creating unemployment. That is against the philosophy of the Labour Party. Clause 1 of the Bill reads:
Every person who pays or is liable to pay a secondary Class 1 contribution under the Social Security Act 1975 in respect of earnings paid in a tax week beginning on or after 6th April 1977 shall be liable to pay with the contribution a surcharge equal to 2 per cent. of the amount of the earnings in respect of which the contribution is paid or payable.
There have been several calculations on what this means to British industry. It is estimated that it will cost almost £100,000, commencing in April 1977.
It was rather dishonest to draft this Bill with wording to attach it to the National Insurance Scheme. If a Government require money, they need only tell Parliament. They should be straight, come to the point and tell Members on both sides about the state of the country. If the Government must have money they do not need to hide that fact in
this manner. This system is one of the cheapest ways of collecting taxes. Many of my constituents, and many industrialists throughout the country, must be wondering, in view of this Bill, where it will end. If it is so easy, cheap and simple to collect 2 per cent. across the hoard from British industry, any future Government may decide to do the same thing. This could create an unsatisfactory state of affairs for British industry.
Compared with other systems of tax collection, none could deny that this method of taxation by adding to national insurance contributions will be a financial terror to small companies in this country, because it is mainly the small companies that lack liquidity. The Minister said that this tax would be so thinly spread throughout the country that it would not penalise individual sectors. He should come down to earth and listen to what a constituent wrote to me at the weekend. She said:
After listening to the Secretary of State for Social Services appealing to people to be good neighbours towards pensioners, I feel obliged to write to you as our Member of Parliament to point out that loneliness is not the real issue. The cause of loneliness is that pensioners just do not have the means to go out and meet people and, for the most part, are too proud to ask for or accept charity. In my opinion, the ever-increasing cost of rents, rates, heating and food is at the root of the trouble.

I would like to point out our own case. My husband is 67 years of age and I am 62. He has worked hard all his life on long-distance haulage work with no other pension, only his State pension, plus a small amount of graduated pension i.e. combined pension £26·48. So to help keep us off the breadline he does a part-time labouring job in an engineering firm three days a week, eight-hour days, for which he is paid 50p an hour or £12 per week.
Since the increase in pensions, they have taken back in tax more than the amount of my pension rise of £1·30. They now deduct £3 out of the £12 in tax, thus leaving £9 out of this. My husband pays 24p per day bus fares and has the cost of lunch.
We have been to the income tax office today and we are told we are being taxed on £8 of our income at 35p in the pound.
I shall not go further. That is a message from the grass roots, from people who have given this country the benefit of their working lives, people who have invested their lives in Great Britain. This man has finished work and, although aged 67, he goes out to do a part-time job. I hope that hon. Members took in what I was saying when I read that letter.
Some of us will have to consider very deeply before we vote in favour or against the Bill. We have to be absolutely sure that there is no other way. I can think of one. There are many people living on islands in the sun whose wealth is being produced in this country but who do not subscribe one penny to the Inland Revenue. These people are outside the British tax laws even though their wealth is produced here. They hold British passports, but if they are not genuine British people, the time has surely come to withdraw British passports from people who believe that Britain and the British are no longer worth their while or their support.
I appeal to the Minister to deal with the questions I have put to him, especially the correspondence to which I have referred. I appeal to him to give us the answers before the Division.

8.59 p.m.

Mr. Stan Thorne: It is a pleasure to follow the speech of my hon. Friend the Member for St. Helens (Mr. Spriggs), who went to the heart of the issue which we are facing. I have long been of the opinion that there resides in the Treasury a form of intellectual expertise which defies the understanding of ordinary mortals such as myself.
We have been given to understand time and again that, in recent months, the Treasury has been in the business of attacking inflation. Apparently the best way to attack inflation is with inflationary measures. National insurance contributions paid by employers are a cost on production. Costs are reflected in prices, so one must assume that prices will rise and be allowed to rise by the Secretary of State for Prices and Consumer Protection.
It might be suggested that the cost be taken out of profits or that we should diminish the rate of profits. But a former Secretary of State for Prices and Consumer Protection introduced a measure some months ago which was designed to improve the rate of profit and to encourage investment in manufacturing industry in particular.
Employers are likely to attempt to reduce costs following the introduction of this measure. How can they do that? Excess capacity in the manufacturing industry can be taken up without adding to the work force. It is possible to cut back on those employed without any real loss in sales. Stockbuilding may be delayed but sales can be maintained. If that is not on, there is always the physical rate of production—the return from labour and how it can be improved and speeded up without a major threat of industrial action, which is not easily undertaken by workers and certainly less easily when unemployment is high.
Industrialists may not invest as early as they might because of this measure, which does nothing to get to grips with the fundamental problems and the basic crisis of the capitalist society in Britain today. The measure is only small beer compared with the measures that the Treasury are apparently in the final stages of preparing.
Who are the decision makers? As far as I am aware, we have no Trotskyists, crypto-Communists or Left-Wing Socialists in the Cabinet.

Mrs. Elaine Kellett-Bowman: The hon. Member must be joking.

Mr. Thorne: We have some Social Democratic politicians who are determined

to prop up an economic system which is reeling and in decline. Talk of an efficient, thriving mixed economy allied to an almost blind belief in an ability to come out of the econmic crisis in the next two years with a greater stability than before falsely motivates the Government Front Bench. If that were to happen I could be forgiven for assuming that we shall proceed vigorously to activate the National Enterprise Board. Or will it then be argued that we do not need such mechanisms as the NEB because things are "going very well, thank you"?
Booms, even small booms, tend to put back economic change. If in the meantime we have recourse to the electorate with our present policies firmly written on the banners in the election campaign, we shall not have the power which government gives to pursue our policies thereafter. We need, as never before, an alternative economic strategy that is considerably different from that—if one can call it a strategy—being pursued by the present Government. That alternative economic strategy has been spelt out several times from the Labour Benches, not least by my hon. Friends the Members for Luton, West (Mr. Sedgemore) and for Bristol, North-West (Mr. Thomas) and several others. It is not my intention—dare I say it?—to bore the House by spelling out some aspects of that economic strategy.

Mr. Brian Sedgemore: My hon. Friend should spell it all out. It will not bore anyone.

Mr. Thorne: The Labour Party, according to its manifesto, its historical development and what is written in Clause 4 of its constitution, is in business to put into effect when in Government economic measures which are based upon the acceptance of the public ownership of the means of production, distribution and exchange. I do not expect any Labour Government to transform the economic situation overnight, but I expect them to respond to capitalist crises with Socialist measures, not measures that hit precisely those people to whom reference has been made by my hon. Friend the Member for St. Helens, who vote Labour and who expect from a Labour Government concern for their living standards and an acceptance of their contribution


over many years to establishing the wealth of this country.
It is no secret that we on the Government side of the House have a three-line Whip tonight. My hon. Friend the Member for Hartlepool (Mr. Leadbitter), whose point of view I respect, said that there were two alternatives—to vote for the measure or for Conservative Members. It seems to me that the Government are relying on precisely that sort of blackmail. It is not the Trotskyists or the Left who are blackmailing us or threatening us in that way. We hear a lot from some very strange places. Over the weekend, we heard from the strangest of them all, my right hon. Friend the Member for Huyton (Sir H. Wilson). It is not the Left who are exercising blackmail. It is the Right wing of the Labour Party that has been in control of the party and of Labour Governments for the best part of this century.
I must admit, finally, to being fed up with the double-think that emanates from the Government Front Bench. This measure will definitely promote further unemployment.

Mr. Nick Budgen: The hon. Gentleman is right about that.

Mr. Thorne: I was not sent here to support any measure that was designed to create further unemployment. On the contrary, I was sent here to ensure measures which would avoid unemployment, and not create it. In spite of all that, I shall gain no pleasure from being in the Lobby alongside Opposition Members, who have no sympathy whatever for the unemployed. I have no alternative in this situation but to vote against this measure. This is a decision that we all have to take. All that a Back Bencher has left is the exercise of his right to vote so as to show his opposition to unpalatable measures.

9.10 p.m.

Mr. David Howell: We have not been playing to a packed House this afternoon—there have been a number of rival attractions. The hon. Member for Preston, South (Mr. Thorne), who spoke so robustly, has reminded us that many of his colleagues have been out for the afternoon hunting the termites which were reported over the weekend to

have eaten the grass roots of the Labour Party. No doubt that has taken some away.
Apart from the fact that Christmas is coming on, the difficulty about getting a debate going on a subject as important as this—it is extraordinary that there should have been so little interest in a Government proposal to raise taxation by £1,000 million—is that we are discussing the events of last summer, which were overtaken by the events of the autumn, which in turn have now been overtaken by the events of this winter.
The errors of last July, which were predicted at the time and of which we believe this Bill to be one, have long since led to other mistakes, as we said they would. They in turn have led to more errors and now the process is being repeated a third time. At this moment, while we have been having this debate, more errors are in the making.
These measures were conceived last summer, when there was a good deal of confidence around in a world recovery. The Chancellor talked boldly about his hopes for economic growth in 1977 and asserted that there would be all sorts of prospects. He said:
The Government's plans for the reduction of the PSBR will of course make it easier to finance the borrowing requirement without excessive growth of the money supply. It will also mean less pressure on interest rates, to the benefit of industry, of mortgage holders and of Government and local authority borrowing."—[Official Report, 22nd July 1976; Vol. 915, c. 2018.]
That was in July, when the idea of a 15 per cent. Minimum Lending Rate would have seemed a nightmare—yet that is what we have.
Things looked very different then. Today business confidence is dropping sharply. The latest survey from the CBI talks of "marginal projects" being dropped. In personal terms, that means that many people will get their cards, that many are being thrown out of work at this moment, new jobs are not coming on line, new warehouses are not being built or new hands being taken on, new investment projects and machinery are not being put in—all because of the high cost of money. Economic growth was going to be 4 or 4½ per cent. in the coming year, but the forecast now is1½ to 2 per cent.
We have been told by everyone, from the Prime Minister downwards, that unemployment will climb sharply. A figure of 1½ million has been mentioned. On present trends—let us hope that they are reversed—and making all too familiar, if weary, guesses about the sort of botched job which will come out of the next economic package—I fear that 1½, million will prove a conservative estimate. I hope and pray not, naturally, but unemployment will climb and climb sharply.
The present position, therefore, could not be more different from what was described by the Chancellor in July and August, when he spoke about the package of measures which spawned the Bill. We know the main reasons. One is the world-wide reason that the recovery has halted. Our high hopes that we would be lifted up on the world boom are not to be borne out. Therefore, it needs totally new thinking.
But the other reason is at home, staring us in the face, written into the words "marginal projects being dropped." The 15 per cent. minimum lending rate, the cost of money, has a tremendous impact. I do not think that hon. Members who talk blithely about the need to keep up public expenditure, implying that they are happy with that sort of interest rate financing, realise the enormous effect of such interest rates on business jobs and prospects. They do not understand the ugly threat, the feeling in the stomach of every person in a job who knows that he may lose it because money is becoming so expensive that his boss will have to close down part of the works. That is the effect of high interest rates, and the high public expenditure requiring those interest rates, and it is why we believe the July measures, of which this is a part, and the way in which they were conceived and shaped to be wrong.
The Financial Secretary rightly said that the alternative to this payroll tax was to cut public spending. We believe that it was a wrong and escapist measure in July. We are not against a shift in the long term towards lower income taxes, higher indirect taxes and higher social security contributions, more in line with those of the EEC. But what we are against is using this as an escapist measure to raise additional revenue

rather than cutting public expenditure when that could have been done in the summer.
I know that back in those heady days the Chancellor of the Exchequer said that it could not be done because it would endanger Government objectives. So the easy way round was taken. This has been a constantly repeated theme of the Financial Secretary: it is an easy tax to introduce; it does not hurt too much; it is the easy way. We think that it is doubly wrong, because it does nothing to raise and restore confidence, which more substantial public expenditure cuts in the summer might very well have done. Moreover, it destroys private sector jobs.
My hon. Friend the Member for St. Ives (Mr. Nott) was absolutely right: if we had been able to persuade the Government in July to have a bit of courage and to go for £2,000 million of cuts, instead of £1,000 million and £1,000 million from the increased taxation on jobs, the chances of avoiding the present axe would have been much greater. The hon. Member for Kingswood (Mr. Walker) shakes his head and sucks in his breath, but that is the reality. The result of going for only £1,000 million of cuts then and trying to snatch the other £1,000 million the easy way through this Bill has been the collapse of confidence now, at a time of great turmoil, and cuts that are far more painful than they would have been if the Government had had more courage back in July.

Mr. Terence Walker: The hon. Gentleman once again talks glibly about £2,000 million cuts. Perhaps he will now tell us where those cuts would come.

Mr. Howell: I was talking about the £2,000 million cuts that should have been made in the summer.

Mr. Walker: Where?

Mr. Howell: Would the hon. Gentle man like a list? The list would be: plans to reduce housing subsidies, which should increase council house rents, probably on a phased basis; a policy of non-replacement of staff in central and local government, which would have a cumulative effect on the PBSR; the possibility of reducing the degree to which social security benefits are upgraded in


line with inflation; together with possible further substantial cuts in construction in the building industry. Does the hon. Gentleman know where that list comes from? It is the reported list that is being worked on now in the Cabinet in preparation for the IMF public expenditure cuts.
That is the kind of price Labour Members and the Government will have to pay for a little lack of courage back in July. If it is said that by arguing for cuts in July we were arguing for unemployment, that is wrong. When the reckoning is done it will be found that if our advice had been taken there would be more people in jobs at the end of the day.
There was a chance back in July to restore what is now called, I believe, the symmetry of the British economy, that is, to do what the Chief Secretary is always eloquently arguing we should do, which is to shift resources out of the public sector and achieve a balance with a larger input into the wealth-creating side. Instead, the Chancellor said that it could not be done without further endangering Government objectives. That appeared in Hansard in July. As a result of that retreat, those Government objectives, from what I have read from the Financial Times, are being endangered.
We had £2,000 million off the public sector borrowing requirement, but, because it was taken out wrongly, we have another £1,500 million to £2,000 million—I hear that it is to be £2,000 million—coming up now. Therefore, within five months the Labour Government will have taken about £4,000 million out of the public sector borrowing requirement. That is the size of the measures that have been taken by the Government.
I agree with some of those on the Left wing of the Labour Party on one point. The tragedy is that even now it is doubtful whether it will be enough. Because it has been done in a botched and reluctant way, because it has been done in a manner which is always reluctant and doubting and without any firm positive strategy, and because it has been done in bits and pieces, I fear that at the end of the day we shall get the worst

of both worlds. Certainly people will be thrown out of work, but the gains which might have been achieved on the other side by raising confidence, getting down interest rates, obtaining better monetary conditions, improving investment prospects and restoring the private sector will not be realised.
Therefore, we shall get the sacrifices in terms of people losing jobs without the gains that would have come if the situation had been handled properly in the first place. That is the first and major reason why we believe that this is the wrong measure. It was wrong at the time, it was put forward in the wrong way in the economic package in July, and now it has been totally invalidated by events.
The second reason concerns the impact of this measure on small businesses and the matters about which my hon. Friend the Member for Basingstoke (Mr. Mitchell) and the hon. Member for St. Helens (Mr. Spriggs) spoke with great eloquence.
The hon. Member for St. Helens used the phrase "a financial terror". That was a very graphic phrase to describe the impact of this 23 per cent. increase on the employer's contribution for a small firm with a few employees. It is a financial terror. It is part of the Government's vendetta against small businesses.
I know that they do not much care for small business men, but, as my hon. Friend the Member for Kidderminster (Mr. Bulmer) reminded us, small business men have been and will be hit very hard. The hon. Member for St. Helens was right when he said that the smaller the firm, the more it would be hit. It will mean that more employees will have to be brought into the office or up to the end of the works and be told "You will have to go. I cannot afford to pay you any more." That is the prospect for the small firm.
It is the same kind of attitude as lay behind the multiple rate VAT. That was brought forward by Treasury Ministers without any concern for the small business. That is why, as my hon. Friend the Member for Basingstoke reminded us, we have bankruptcies at an all-time record level. This measure will give that wheel another spin, and more people


will be thrown out of work as a result of its application.
The third reason why we have no time for this Bill concerns the Churches and charities. A shabby trick was played on the House through the Ways and Means Resolution. It was unworthy of the Government to make it impossible for hon. Members to put down amendments regarding the position of Churches and charities. I am sorry that Treasury Ministers decided to go for that kind of device.
The Financial Secretary said "It is all right. Do not worry. The Archbishop of Canterbury will see the Prime Minister." There are plenty of things on which the Government need spiritual advice from the Archbishop of Canterbury, but I should have thought that two such senior people could employ their time a little better than having to sort out the latest mess created by the Laurel and Hardy team at the Treasury over this tax.

Mr. Terry Walker: Which is Laurel?

Mr. Robert Sheldon: There has been some misunderstanding about the precise form of the representations regarding the Churches. I know that representations are being made. I am not sure of the way in which they are due to be made.

Mr. Howell: It seems that the picture of the Archbishop of Canterbury and the Prime Minister in cahoots is not correct. I am sorry about that. At any rate, that is what the Financial Secretary said earlier. Clearly some intervention is needed, divine or otherwise.
The way in which the Churches have been treated verges on the malicious. On 16th July the prelates, in their wisdom, decided under pressure from the Government—according to a letter in The Times today, they did so reluctantly —to become employed earners and, therefore, involved in paying employer contributions. That will cost the Church of England £350,000.
On 22nd July, without any warning, an announcement was made in the House that doubled the liability. That was within a week of the Churches having decided to become employed earners.

That seems to be a cruel reward for complying with Government pressures to join the employed earner category.
There is nothing to be proud about in those events. There is nothing to be proud about in that this measure will add the following sums to the following charities—namely, £12,000 to the National Council of Social Service, £25,000 to the Save the Children Fund, £93,000 to the Spastics Society and £120,000 to Dr. Barnardo's. I see nothing to be proud about in those measures.
The Financial Secretary told us that the Archbishop was to meet the Prime Minister although it now appears that they are not to meet. Whatever happens, I think that the Minister owes it to the House to explain in great detail what will be done to take the heat off these people. The Ways and Means Resolution has denied us the chance of tabling amendments and debating the matter properly on Wednesday, which is disgraceful.
The final reason for our opposition to this measure—perhaps it is the strongest of all—is concerned with jobs. It has been asserted again and again that more public spending cuts will throw people out of work. That is correct, and it would be painful, but everyone recognises that we shall not get out of this difficulty without pain. We have argued, and we argue now, that not to cut will be more painful, that more people will be thrown out of work. There could be no better proof of our thesis than the issue we are now debating.
In the summer we told the Government that if they did not face reality and cut spending they would find it necessary to take measures to throw people out of work. We did not anticipate the 15 per cent. Minimum Lending Rate, but we knew about this proposal, which even on the Government's estimate would put another 10,000 people out of work. There have been many estimates that put the figure considerably higher.

Mr. George Cunningham: A minute or two ago the hon. Member quoted some figures when describing the effect of the Bill on charities. In one instance I believe that he quoted a figure of approximately £100,000. On a rough calculation that suggests a wages bill of about £5 million. Can that be true?

Mr. Howell: The hon. Gentleman's rough calculation is not quite the same as mine. The figures I quoted are those involved given the 23 per cent. increase in the national insurance employer payment. If my figures are not precise, we shall work out the precise figures after-wards. Very substantial amounts are involved. The Church of England figure is correct. I do not know whether the Minister will confirm it, but it is £350,000.

Mr. George Cunningham: The hon. Gentleman says that he will work out the accurate figures afterwards, but he worked out what he suggested were accurate figures for the purpose of the quotations he made a few minutes ago. It is a simple matter of arithmetic. If 2 per cent. equals £100,000, 100 per cent. is £5 million. It is roughly 2 per cent. of the wages Bill. In fact, it is a little less than that—namely, 1·8 per cent. If 1·8 per cent. of the wages bill is £100,000, the wages bill must be approximately £5 million. The hon. Gentleman made a lot of this so let us get it right. Do any of the charities have a wages bill of £5 million? If so, it is incredible.

Mr. Howell: Those are the figures given by the charities. I should have thought that a total wages bill of £5 million for all those working in charities was not a fantastic sum. The hon. Member must accept that these are the figures provided by the charities. If he wants to challenge the charities, let him do so. I think that he will find that he is totally wrong, as he proved to be in an earlier intervention this afternoon.
I was talking about the loss of jobs involved in this measure. The Leader of the House has used the most emotive words on this question of jobs. He has said that:
We will fight unemployment so long as there is breath in our bodies.
We say that if any Labour Members support that statement they should be voting with us against this Bill in the Lobby tonight.
As for those of whom the Leader of the House was speaking, all that I can say after tonight's work is that those who are to lose their jobs—and there are, alas, many in that position—would do well to steer clear of the breathing apparatus of hon. Members on the left wing of the

Labour Party. Every time they utter a word, and we have had examples this evening, more jobs are lost. The commitment over the nationalisation measure last week and the week before meant that more jobs were lost. Tonight's work will mean anothed 10,000 jobs lost, at least. I exclude from my comments some Labour Members who have spoken eloquently and with understanding this evening. They see what will be the impact of this measure. Despite the fine words of members of the Left about fighting unemployment we see that their actions belie their words.
Except for a very small part of the Job Creation Programme which has good elements in it, practically everything that has been done since July has helped to destroy jobs and make new ones more scarce. This Bill raises taxes when taxable capacity is almost at its limit. It is part of the Government's job destruction programme. That is why I advise my right hon. and hon. Friends to vote against it.

9.32 p.m.

The Minister of State, Treasury (Mr. Denzil Davies): We have had a long and interesting debate. Perhaps I could deal first with some of the specific points that have been raised. I refer at once to the speech of my hon. Friend the Member for St. Helens (Mr. Spriggs) who suggested that it was dishonest to introduce this tax—I accept that it is a tax—by attaching it, as he said, to the National Insurance Scheme. I want to refute that allegation of dishonesty.
This tax was announced by my right hon. Friend on 22nd July as part of the July measures. It was debated again on 2nd August and it was made clear that this was a tax to raise money and to reduce the Government's public sector borrowing requirement. We said that we thought that the best way, administratively, of raising the money was through the medium of the National Insurance Scheme. It is in no way intended to be an abuse of that scheme. We thought that it was the easiest way of doing it, far easier, for instance, than raising the same amount through value added tax.

Mr. Spriggs: Will my hon. Friend tell the House when this Bill was published?

Mr. Davies: My hon. Friend knows quite well when the Bill was published. The details of the tax—

Mr. Spriggs: When?

Mr. Davies: —were made absolutely clear when the tax was announced.

Mr. David Howell: When?

Mr. Davies: Last week.
May I also say that Conservative Members who now complain about this tax and the fact that we are using the National Insurance Scheme to raise the money should have given greater thought to this problem when they introduced VAT. If they had done so they would not have created a vast bureaucracy requiring 12,000 civil servants to raise a sum which could have been raised much more easily. The Conservative Party when in Government could have imposed fewer burdens on industry had they not introduced the complex VAT system.
One of the major points raised in the debate related to Churches and charities. It was raised in a thoughtful speech by my hon. Friend the Member for Kings-wood (Mr. Walker) who, unlike some Tory Members, put forward a clear and cogent argument. He did not attempt to use figures from newspapers, which seem to be wildly out, at least as far as we can tell, but he made valid points. We shall consider very carefully the representations which have been made and are being made by the Churches and charities. The fact that the Bill may become law without an amendment will not inhibit us from listening to those representations and considering them in depth, and if it turns out—I make no commitment—that we think that we should accede to them it will be possible to put the matter right before the tax is introduced on 6th April.

Mr. Ian Stewart: As the surcharge will not be paid until April next year and the passage of the Bill can, apparently, be compressed in a week, would it not have been better to wait until the representations had been considered and then introduced a Bill which took them into account?

Mr. Davies: No. The Bill must be passed fairly quickly so that the new tables to be sent to employers can be

sent out early enough and be in their hands to enable them to do the national insurance calculations in good time. Hon. Members would not want us to impose greater administrative burdens on industry by delaying the sending out of the information.
We accept that representations are being made about Churches and charities. We shall consider them with great sincerity. The fact that the Bill may become law without an amendment will not inhibit us in taking account of those representations if we feel that they are justified.
Another point which has been raised relates to the surcharge and the question of deductibility for the Price Code. Perhaps I can deal briefly with this matter to make clear how the surcharge and the Price Code will operate. It will be treated in exactly the same way as employers' national insurance contributions, which are an allowable cost. Manufacturing and service industries will be permitted to pass the tax through their prices, just as they are able to pass on increases in other overhead costs.
I come to the point raised by the hon. Member for St. Ives (Mr. Nott). The position of distributors is different because the Price Code does not permit them to increase their prices solely on the ground that their overheads have gone up. However, the cost of the goods that they sell will have risen because of the surcharge and distributors will be permitted to add their normal mark-up to these increased costs. The position about the surcharge is no different under the Price Code from what it is in relation to other costs.
My hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) and the hon. Member for Hitchin (Mr. Stewart) referred to the difference between the yield in 1977–78 and the reduction in the public sector borrowing requirement, saying that the yield will be greater than the reduction in the public sector borrowing requirement. Let me explain why there is a difference between the two figures. There are several reasons. First, the price of goods and services purchased by the Government will increase to reflect the National Insurance Surcharge. Hence, there is some offset in terms of the cost of public expenditure.
Secondly, social security benefits which are linked to prices will be increased because of the small price effect of the tax. Unemployment pay will also rise because of the increase in unemployment, although this will be very small because, as the hon. Member for Guildford (Mr. Howell) conceded, the increase in unemployment will be about 10,000 jobs. [HON. MEMBERS: "No."] That is what the hon. Gentleman said.

Mr. David Howell: Why does the Minister of State say that I said things that I did not say? If he looks at Hansard tomorrow, he will see that at no point did I concede such a figure. I said that it was the estimate of the Financial Secretary. Many others put it considerably higher.

Mr. Davies: The only figure which the hon. Gentleman gave was the figure given by my hon. Friend—10,000—and the hon. Gentleman has not challenged it.
Thirdly, there is the impact of a tax of this kind on other tax receipts because, to the extent that the level of demand in the economy as a whole is lower, the revenue from other taxes will be reduced. That is why there is a difference between the yield of the tax in 1977–78 and the reduction in the public sector borrowing requirement which we seek.

Mr. David Mitchell: The evidence given to the Select Committee was that the cut of £2,000 million imposed in the July measures would lead to an increase in unemployment of 150,000 or 160,000. As £1,000 million, of half of that sum, is to be raised by this surcharge, does it not follow that the unemployment figure will be increased by half as much?

Mr. Davies: It does not follow. If the hon. Gentleman reads the debate which took place on 2nd August he will see clearly that my right hon. Friend said£and I repeat£that the effect of this tax on employment will be 10,000 jobs lost by the end of the fourth quarter after the introduction of the tax.
I turn to the question of profits. Fears have been expressed on both sides to the effect that this tax will affect the profits of industry. The tax is not entirely based on any prices. I accept that some industries will want to pass the tax on in increased prices. In other cases they will

not be able to do so. In other cases still I accept that industries will have to absorb the increase.
Over the past 12 months the Government have introduced a number of measures that have made it easier for industry to increase its productivity. For instance, there has been the relaxation of the Price Code, which will have run for nine months before this tax is introduced. There are the stock relief proposals which have been of enormous benefit to industry. Also there are the very generous incentives and reliefs from corporation tax.

Mr. Giles Shaw: Irrespective of what the hon. Gentleman is now saving, would he not agree with the statement of the Price Commission in its latest report, that the profitability of British industry is about 56 per cent. of reference levels and that since 1972 at any rate its real profitability has considerably decreased?

Mr. Davies: I accept that over the past 10 or 20 years the profitability of industry has not been as high as it should have been. The concern expressed in the debate, is that next year when the tax is introduced it will have a very adverse effect on the profitability of industry.
My point was that the profitability of industry next year will show a healthy increase as a result of many measures which have been introduced. [HON. MEMBERS: "Really?"] Hon. Members do not believe Treasury figures. I will give them figures from a firm of stockbrokers which no doubt they will believe, as so many of them seem to spend so much time in and around the City. I quote from what the firm of Phillips and Drew said in its latest estimate of company profits:
Despite the current slow down in world economic growth and the worsening outlook for consumer spending in the United Kingdom we still expect that there will be another significant advance in company profits next year. We are forecasting a 20 per cent. rise in industrial profits, 34 per cent. in financial profits and 25 per cent. increase in oil company's profits.
In view of that forecast from a leading firm of stockbrokers, do hon. Members still argue that profits will be under great pressure next year as a result of the introduction of this impost? If they


do, they are not interested in arguments or forecasts.

Mr. Budgen: Will the hon. Gentleman tell the House what the effect of a reduction in the increase of the supply of money, particularly if it is reduced to say, a 10 per cent. increase, will be upon profits over the period in which the supply of money is so controlled?

Mr. Davies: The hon. Gentleman is dealing with an entirely different point, as he well appreciates. I will come to the difficulty of financing the public sector borrowing requirement and the need for the tax because of the difficulty of financing a high PSBR. As for profits, hon. Gentlemen have made wild statements which bear no resemblance to reality.

Mr. Russell Fairgrieve: Does the hon. Gentleman think that next year profit as a percentage of sales will rise?

Mr. Davies: I do not think that the hon. Gentleman is talking about the same thing. My point was that, if industry has an increase in profits next year, this tax will not bear heavily—in fact, it will bear very lightly—given the fact that in many cases the tax will be passed on in prices and that not all firms will seek to absorb the tax in one way or another.

Mr. MacGregor: With regard to profits, if these increases actually take place, what real rate of return on capital would this produce for companies? Will the Minister say whether it would take into account the inflation accounting system?

Mr. Davies: The hon. Gentleman is going deep into quite different areas and will not expect me to answer questions about them. No doubt if he reads Phillips and Drew he will find something relevant on those aspects.
My hon. Friend the Financial Secretary said in opening that the main need for the tax was in order to reduce the PSBR. That is the main problem facing the Government at the moment—the problem of financing the PSBR—and that is why we decided to introduce this tax.
Some people may ask "Why bother to reduce the PSBR at all?" At one time

the Conservative Government were happy to print money rather than pay much attention to the effects of the PSBR on the economy. But if we do not reduce it we have to try to finance it at very high rates of interest, and these affect industry and housing as well. We cannot finance a very high public sector borrowing requirement without having to pay very high rates of interest on the money we borrow. The effect of those high rates of interest on industry, jobs, employment and housing would be far greater than the effect on industry of reducing the PSBR by the amount it will be reduced as a result of this tax surcharge.
Some of my hon. Friends—in particular my hon. Friend the Member for South Ayrshire (Mr. Sillars)—asked why we do not reduce the PSBR by cutting unemployment. If it were possible in the short term to reduce the PSBR by reducing unemployment, that would be the best way to do it in the present situation. But I ask my hon. Friend, for whom I have the greatest regard and respect, how he suggests that we could cut unemployment in the short term without creating problems or even increasing inflation and damaging investment and employment in the medium term.
I know of no way in which we can reflate the economy when inflation is runing at 15 or 16 per cent. My hon. Friend suggested bringing in imports control, but my understanding even of the alternative strategy on that subject is that it would need a very substantial cut in public expenditure, and I do not think that my hon. Friend would support it if that came about. There is really no alternative, I suggest—

Mr. Sillars: My point was in respect of the control and direction of capital to ensure an adequate level of investment. Why has my hon. Friend dodged that aspect of the argument?

Mr. Davies: I did not dodge it. I had forgotten that my hon. Friend made that point, and I apologise for that. But we have extremely strict controls over the movement of capital out of this country. The investments to which he referred would not have been financed out of the reserves of this country. Most foreign investments at the moment, because of the tight controls introduced, are financed abroad. My hon. Friend may ask "Why


have that foreign investment at all? Why not have it in the United Kingdom?" That is another point. But the fact is that there is no drain on our reserves at the moment as a result of investment abroad.
I return to the question of the need to reduce the PSBR. There are two approaches, and they have been shown very clearly in the debate. The Government maintain that to reduce the PSBR we must have a combination of direct control of public expenditure and control of fiscal measures. It is the fiscal part of the package, introduced by my right hon. Friend, that we are debating tonight.
The Government believe—unlike the Conservative Party and the Conservative Front Bench—that the PSBR problem is a financing problem, and that it should be dealt with not entirely by cutting public expenditure, which Conservative Members want to do, but by a combination of fiscal measures and public expenditure measures.
If it is agreed that some way has to be found of reducing the PSBR, and that this should be done partly by fiscal measures, then we have to look at the different fiscal measures available to us. But the only two main fiscal measures available to reduce the requirement by over £700 million are value-added tax and income tax. These are the two broad-based fiscal measures which could be said to be alternative ways of reducing the requirement by such an amount.
Some hon. Members might wish to increase value added tax, but to raise such an amount of money would mean an increase of 3½ per cent. in the basic rate of VAT. That would have meant a loss over the first 12 months of 50,000 jobs instead of the 10,000 which will be lost as a result of this measure. The effect of such an increase in VAT would therefore have been far greater in the first 12 months than it will be by this means.

Mr. J. W. Rooker: Does not my hon. and learned Friend accept that he has just made out a case for scrapping value added tax and raising the money through national insurance contributions because fewer jobs would be lost in that way?

Mr. Davies: I do not think that there is a case for scrapping VAT, and in any

case we are bound by treaty to keep it. But whether VAT is the best way of raising such a sum of money is a matter for debate on other occasions. If VAT were raised by 3½ per cent., prices would increase more quickly—indeed, by the beginning of summer next year they would have gone up almost 2 per cent. My hon. Friend should consider the effect of another 2 per cent. on the retail price index in the middle of next year on the social contract in terms of jobs and prices. The surcharge will increase prices by less and will cause fewer jobs to be lost.

Mr. Bulmer: Does it not follow from what the hon. and learned Gentleman has said that the Government have plans to introduce further increases in VAT?

Mr. Davies: The hon. Gentleman knows that he cannot simply ask questions like that. The point is that, if we have to choose, given the need to reduce the public sector borrowing requirement and to do so by a combination of fiscal and public expenditure measures, this surcharge is less damaging than an increase of 3½ per cent. on VAT would entail.
The other alternative would have been 2p on the basic rate of income tax. My hon. Friend the Member for St. Helens made the fair point that a constituent was complaining about the rates which pensioners have to pay in direct taxation. If we were to raise the basic rate of income tax by another 2p, his constituent, and so many others on low incomes, would suffer even more, and no one would suggest that we should go along that road.

Mr. F. A. Burden: What will happen if there is also a 3½ per cent. increase in VAT?

Mr. Davies: The hon. Gentleman is asking a hypothetical question. I was pointing out the alternative options for raising close on £1,000 million as part of the July package. One of them would have been to raise VAT, which would have had a worse effect than this surcharge, and the other would have been an increase in income tax. Given the need—which the Opposition do not accept, because they do not accept that it is necessary to reduce the public sector borrowing requirement by fiscal means


as well as by reducing expenditure—I suggest that this surcharge is the best way to do it in terms of prices, jobs and the general effect on the economy.
My hon. Friend the Member for Preston, South (Mr. Thorne) suggested that Ministers would, at the end of the debate, say "If you do not vote for this measure you will let the Opposition in and they will cut public expenditure." He said that that kind of argument would be blackmail on our part. I say to him that there is no question of blackmail. We have to face the realities of the situation and the difficult choices which have to be made in a very difficult economic situation.
The hon. Member for Guildford said quite clearly and honestly that if the Opposition were in power they would introduce a package cutting public expenditure by £2 billion. That is their approach. Our approach is that there must be a combination of fiscal and public expenditure measures—£1 billion in public expenditure cuts and £1 billion in taxation.

Mr. Nott: Is the Minister of State saying that the Government will not be cutting £2 billion off public expenditure?

Mr. Davies: The hon. Gentleman must contain himself. The point has been made fairly clear, even to the Opposition Front Bench. We are concerned with the July package and the need to reduce the Government's deficit by £2 billion. We have said consistently that we cannot allow public expenditure to bear the whole brunt of that reduction. We must balance the public expenditure reduction with an increase in taxation, and that is what we are doing here. That is what we are voting for tonight—a combination of cuts in public expenditure and fiscal measures.
I have been reading the debate on the Address. The hon. Member for Cornwall, North (Mr. Pardoe) quoted Mr. Milton Friedman. I know that Mr. Friedman has some apostles on the Opposition Front Bench, but even he does not seek a wholesale slashing of public expenditure.

Even he accepts that the package must be a combination of fiscal measures and public expenditure cuts. What we have heard tonight is something well to the right of Milton Friedman. It seems that the Opposition are now saying "Forget the fiscal measures and cut public expenditure because this is something to which we are committed ideologically."

My hon. Friends the Members for South Ayrshire and St. Helens, and the hon. Member for Dunbartonshire, East (Mrs. Bain) mentioned the effect of this measure on the regions. But I must tell them that Scotland, Wales and the English regions all benefit more from public expenditure than other parts of Britain. If we were to go along the road advocated by the Opposition, Scotland, Wales and the regions would suffer far more than under our policies. This is the choice which Scotland, Wales and the regions must make tonight. I would have thought that, looking at it in terms of reducing the PSBR, hon. Members from those areas would prefer our kind of approach to the Tory approach.

The choice is quite clear—whether we reduce the PSBR by cutting £2 billion off public expenditure or by putting half the burden on public expenditure and raising taxation. Hon. Members must bear in mind that company profits next year will not be bad, and only half the burden will fall on manufacturing industry, which is the backbone of our industry. That is the choice which the House must make. I urge hon. Members to reject the Opposition's desire for wholesale cuts of £2 billion in public expenditure and to support the Second Reading of this Bill.

Mr. Nott: With the leave of the House, I must say to the Minister of State—

Hon. Members: No.

Mr. Speaker: Order. Permission refused.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 280, Noes 278.

Division No. 11.]
AYES
[10.00 p.m.


Abse, Leo
Archer, Peter
Ashton, Joe


Allaun, Frank
Armstrong, Ernest
Atkins, Ronald (Preston N)


Anderson, Donald
Ashley, Jack
Atkinson, Norman




Bagier, Gordon A.T.
Gilbert, Dr John
Miller, Mrs Millie (Ilford N)


Barnett, Guy (Greenwich)
Ginsburg, David
Mitchell, R. C. (Soton, Itchen)


Barnett, Rt Hon Joel (Heywood)
Golding, John
Molloy, William


Bates, Alf
Gould, Bryan
Moonman, Eric


Bean, R. E.
Gourlay, Harry
Morris, Alfred (Wythenshawe)


Benn, Rt Hon Anthony Wedgwood
Graham, Ted
Morris, Charles R. (Openshaw)


Bennett, Andrew (Stockport N)
Grant, George (Morpeth)
Morris, Rt Hon J. (Aberavon)


Bidwell, Sydney
Grant, John (Islington C)
Moyle, Roland


Bishop, E. S.
Grocott, Bruce
Murray, Rt Hon Ronald King


Blenkinsop, Arthur
Hamilton, James (Bothwell)
Newens, Stanley


Boardman, H.
Harrison, Walter (Wakefield)
Noble, Mike


Booth, Rt Hon Albert
Hart, Rt Hon Judith
Oakes, Gordon


Bottomley, Rt Hon Arthur
Hattersley, Rt Hon Roy
Ogden, Eric


Boyden, James (Bish Auck)
Hatton, Frank
O' Halloran, Michael


Bradley, Tom
Hayman, Mrs Helene
Orme, Rt Hon Stanley


Bray, Dr Jeremy
Healey, Rt Hon Denis
Ovenden, John


Brown, Hugh D. (Provan)
Heffer, Eric S.
Owen, Rt Hon Dr David


Brown, Robert C. (Newcastle W)
Hooley, Frank
Padley, Walter


Brown, Ronald (Hackney S)
Horam, John
Palmer, Arthur


Buchan, Norman
Hoyle, Doug (Nelson)
Park, George


Buchanan, Richard
Huckfield, Les
Parker, John


Butler, Mrs Joyce (Wood Green)
Hughes, Rt Hon C. (Anglesey)
Parry, Robert


Callaghan, Rt Hon J. (Cardiff SE)
Hughes, Mark (Durham)
Pendry, Tom


Callaghan, Jim (Middleton &amp; P)
Hughes, Robert (Aberdeen N)
Perry, Ernest


Campbell, Ian
Hughes, Roy (Newport)
Phipps, Dr Colin


Canavan, Dennis
Irvine, Rt Hon Sir A. (Edge Hill)
Prentice, Rt Hon Reg


Cant, R. B.
Irving, Rt Hon S. (Dartford)
Prescott, John


Carmichael, Neil
Jackson, Colin (Brighouse)
Price, C. (Lewisham W)


Carter, Ray
Jackson, Miss Margaret (Lincoln)
Price william (Rugby)


Cartwright, John
Janner, Greville
Radice, Giles


Castle, Rt Hon Barbara
Jay, Rt Hon Douglas
Rees, Rt Hon Merlyn (Leeds S)


Clemitson, Ivor
Jeger, Mrs Lena
Richardson, Miss Jo


Cocks, Rt Hon Michael
Jenkins, Hugh (Putney)
Roberts, Albert (Normanton)


Cohen, Stanley
John, Brynmor
Roberts, Gwilym (Cannock)


Coleman, Donald
Johnson, James (Hull West)
Robinson, Geoffrey


Concannon, J. D.
Johnson, Walter (Derby S)
Roderick, Caerwyn


Conlan, Bernard
Jones, Alec (Rhondda)
Rodgers, George (Chorley)


Cook, Robin F. (Edin C)
Jones, Barry (East Flint)
Rodgers, Rt Hon William (Stockton)


Corbett, Robin
Jones, Dan (Burnley)
Rooker, J. W.


Cowans, Harry
Judd, Frank
Roper, John


Cox, Thomas (Tooting)
Kaufman, Gerald
Rose Paul B.


Craigen, Jim (Maryhill)
Kelley, Richard
Ross, Rt Hon W. (Kilmarnock)


Crawshaw, Richard
Kerr, Russell
Rowlands, Ted


Cronin, John
Kilroy-Silk, Robert
Ryman, John


Crosland, Rt Hon Anthony
Kinnock, Neil
Sandelson, Neville


Crowther, Stan (Rotherham)
Lambie, David
Sedgemore, Brian


Cryer, Bob
Lamborn, Harry
Selby, Harry


Cunningham, G. (Islington S)
Lamond, James
shaw Arnold (Ilford South)


Cunningham, Dr J. (Whiteh)
Latham, Arthur (Paddington)
Sheldon Robert Ashton-u-Lyne>


Davidson, Arthur
Leadbitter, Ted
Shore, Rt Hon Peter


Davies, Bryan (Enfield N)
Lee, John 
Short, Mrs Renée (Wolv NE)


Davies, Denzil (Llanelli)
Lever, Rt Hon Harold
Silkin, Rt Hon John (Deptford)


Davies, Ifor (Gower)
Lewis, Ron (Carlisle)
Silkin, Rt Hon S. C. (Dulwich)


Davis, Clinton (Hackney C)
Lipton, Marcus
Silverman, Julius


Deakins, Eric
Litterick, Tom
Skinner, Dennis


Dean, Joseph (Leeds West)
Loyden, Eddie
Smith, John (N Lanarkshire)


Dell, Rt Hon Edmund
Luard, Evan
Spearing, Nigel


Dempsey, James
Lyon, Alexander (York)
Spriggs, Leslie


Doig, Peter
Lyons, Edward (Bradford W)
Stallard, A. W.


Dormand, J. D.
Mabon, Dr J. Dickson
Stewart, Rt Hon M. (Fulham)


Douglas-Mann, Bruce
McCartney, Hugh
Stoddart, David


Duffy, A. E. P.
McDonald, Dr Oonagh
Stott, Roger


Dunnett, Jack
McElhone, Frank
Strang, Gavin


Dunwoody, Mrs Gwyneth
MacFarquhar, Roderick
Strauss, Rt Hon G. R.


Eadie, Alex
McGuire, Michael (Ince)
Summerskill, Hon Dr Shirley


Edge, Geoff
MacKenzie, Gregor
Swain, Thomas


Edwards, Robert (Woiv SE)
Mackintosh, John P.
Thomas, Jeffrey (Abertillery)


Ellis, John (Brigg &amp; Scun)
Maclennan, Robert
Thomas, Mike (Newcastle E)


Ellis, Tom (Wrexham)
McMillan, Tom (Glasgow C)
Thomas, Ron (Bristol NW)


English, Michael
McNamara, Kevin
Tierney, Sydney


Ennals, David
Madden, Max
Tinn, James


Evans, Fred (Caerphilly)
Magee, Bryan
Tomlinson, John


Ewing, Harry (Stirling)
Mahon, Simon
Tomney, Frank


Fernyhough, Rt Hon E.
Mallalleu, J. P. W.
Torney, Tom


Fitch, Alan (Wigan)
Marks, Kenneth
Tuck, Raphael


Flannery, Martin
Marquand, David
Varley, Rt Hon Eric G.


Fletcher, L. R. (llkeston)
Marshall, Dr Edmund (Goole)
Wainwright, Edwin (Dearne V)


Fletcher, Ted (Darlington)
Marshall, Jim (Leicester S)
Walden, Brian (B' ham L'dyw' d)


Foot, Rt Hon Michael
Mason, Rt Hon Roy
Walker, Harold (Doncaster)


Ford, Ben
Maynard, Miss Joan
Walker, Terry (Kingswood)


Forrester, John
Meacher, Michael
Ward, Michael


Fraser, John (Lambeth, N'w'd)
Mellish, Rt Hon Robert
Watkins, David


Freeson, Reginald
Mikardo, Ian
Watkinson, John


Garrett, John (Norwich S)
Millan, Rt Hon Bruce
Weetch, Ken


George, Bruce
Miller, Dr M. S. (E Kilbride)
Weitzman, David







Welibeloved, James
Williams, Rt Hon Shirley (Hertford)
Wrigglesworth, Ian


White, Frank R. (Bury)
Williams, Sir Thomas (Warrington)
Young, David (Bolton E)


White, James (Pollok)
Wilson, Alexander (Hamilton)



Whitlock, William
Wilson, Rt Hon Sir Haroid (Huyton)
TELLERS FOR THE AYES:


Willey, Rt Hon Frederick
Wise, Mrs Audrey
Mr.Joseph Harper and


Williams, Alan (Swansea W)
Woodall, Alec
Mr.Peter Snape.


Williams, Alan Lee (Hornch'ch)
Woof, Robert





NOES


Adley, Robert
Fraser, Rt Hon H. (Stafford &amp; St)
Luce, Richard


Aitken, Jonathan
Freud, Clement
McAdden, Sir Stephen


Alison, Michael
Fry, Peter
MacCormick, Iain


Amery, Rt Hon Julian
Galbraith, Hon T. G. D.
McCrindie, Robert


Arnold, Tom
Gardiner, George (Reigate)
Macfariane, Neil


Atkins, Rt Hon H. (Speithorne)
Gardner, Edward (S Fylde)
MacGregor, John


Awdry, Daniel
Gilmour, Rt Hon lan (Chesham)
Macmillan, Rt Hon M. (Farnham)


Bain, Mrs Margaret
Gilmour, Sir John (East Fife)
McNair-Wilson, M. (Newbury)


Baker, Kenneth
Glyn, Dr Alan
McNair-Wilson, P. (New Forest)


Banks, Robert
Godber, Rt Hon Joseph
Madel, David


Beith, A. J.
Goodhart, Philip
Marshall, Michael (Arundel)


Bell, Ronald
Goodhew, Victor
Marten, Neil


Bennett, Dr Reginald (Fareham)
Goodlad, Alastair
Mates, Michael


Benyon, W.
Gorst, John
Mather, Carol


Berry, Hon Anthony
Gow,Ian (Eastbourne)
Maude, Angus


Biffen, John
Gower, Sir Raymond (Barry)
Maudling, Rt Hon Reginald


Biggs-Davison, John
Grant, Anthony (Harrow C)
Mawby, Ray


Blaker, Peter
Gray, Hamish
Maxwell-Hyslop, Robin


Body, Richard
Griffiths, Eldon
Mayhew, Patrick


Boscawen, Hon Robert
Grimond, Rt Hon J.
Meyer, Sir Anthony


Bottomley, Peter
Grist, Ian
Miller, Hal (Bromsgrove)


Bowden, A. (Brighton, Kemptown)
Hall, Sir John
Mills, Peter


Boyson, Dr Rhodes (Brent)
Hall-Davis, A. G. F.
Miscampbell, Norman


Braine, Sir Bernard
Hamilton, Michael (Salisbury)
Mitchell, David (Basingstoke)


Brittan, Leon
Hampson, Dr Keith
Moate, Roger


Brockiebank-Fowler, C.
Hannam, John
Monro, Hector


Brotherton, Michael
Harvie Anderson, Rt Hon Miss
Montgomery, Fergus


Brown, Sir Edward (Bath)
Hastings, Stephen
Moore, John (Croydon C)


Bryan, Sir Paul
Havers, Sir Michael
More, Jasper (Ludlow)


Buchanan-Smith, Alick
Hawkins, Paul
Morgan, Geraint


Budgen, Nick
Hayhoe, Barney
Morgan-Giles, Rear-Admiral


Bulmer, Esmond
Henderson, Douglas
Morris, Michael (Northampton S)


Burden, F. A.
Heseltine, Michael
Morrison, Hon Peter (Chester)


Butler, Adam (Bosworth)
Hicks, Robert
Mudd, David


Carlisle, Mark
Higgins, Terence L.
Neave, Airey


Chalker, Mrs Lynda
Hodgson, Robin
Nelson, Anthony


Churchill, W. S.
Holland, Philip
Neubert, Michael


Clark, Alan (Plymouth, Sutton)
Hooson, Emlyn
Newton, Tony


Clark, William (Croydon S)
Hordern, Peter
Normanton, Tom


Clegg, Walter
Howe, Rt Hon Sir Geoffrey
Nott, Jonn


Cockcroft, John
Howell, David (Guildford)
Onslow, Cranley


Cooke, Robert (Bristol W)
Howell, Ralph (North Norfolk)
Oppenheim, Mrs Sally


Cope, John
Howells, Geraint (Cardigan)
Osborn, John


Cordle, John H.
Hunt, David (Wirral)
Page, Rt Hon R. Graham (Crosby)


Cormack, Patrick
Hurd, Douglas
Page, Richard (Workington)


Corrie, John
Hutchison, Michael Clark
Pardoe, John


Costain, A. P.
Irving, Charles (Cheltenham)
Parkinson, Cecil


Crawford, Douglas
James, David
Pattie, Geoffrey


Critchley, Julian
Jenkin, Rt Hon P. (Wanst'd &amp; W'df'd)
Penhaligon, David


Crowder, F. P.
Jessel, Toby
Percival, Ian


Davies, Rt Hon J. (Knutsford)
Johnson Smith, G. (E Grinstead)
Peyton, Rt Hon John


Dean, Paul (N Somerset)
Johnston, Russell (Inverness)
Pink, R. Bonner


Dodsworth, Geoffrey
Jones, Arthur (Daventry)
Price, David (Eastleigh)


Douglas-Hamilton, Lord James
Jopling, Michael
Prior, Rt Hon James


Drayson, Burnaby
Joseph, Rt Hon Sir Keith
Pym, Rt Hon Francis


du Cann, Rt Hon Edward
Kaberry, Sir Donald
Raison, Timothy


Durant, Tony
Kellett-Bowman, Mrs Eiaine
Rathbone, Tim


Dykes, Hugh
Kershaw, Anthony
Rawlinson, Rt Hon Sir Peter


Eden, Rt Hon Sir John
Kilfedder, James
Rees, Peter (Dover &amp; Deal)


Edwards, Nicholas (Pembroke)
Kimball, Marcus
Rees-Davies, W. R.


Emery, Peter
King, Evelyn (South Dorset)
Reid, George


Eyre, Reginald
King, Tom (Bridgwater)
Renton, Rt Hon Sir D. (Hunts)


Fairbairn, Nicholas
Kitson, Sir Timothy
Renton, Tim (Mid-Sussex)


Fairgrieve, Russell
Knight, Mrs Jill
Rhys Williams, Sir Brandon


Farr, John
Knox, David
Ridley, Hon Nicholas


Fell, Anthony
Lamont, Norman
Ridsdale, Julian


Finsberg, Geoffrey
Langford-Holt, Sir John
Rifkind, Malcolm


Fisher, Sir Nigel
Latham, Michael (Melton)
Roberts, Wyn (Conway)


Fletcher, Alex (Edinburgh N)
Lawrence, Ivan
Ross, Stephen (Isle of Wight)


Fletcher-Cooke, Charles
Lawson, Nigel
Rossi, Hugh (Hornsey)


Fookes, Miss Janet
Lester, Jim (Beeston)
Rost, Peter (SE Derbyshire)


Forman, Nigel
Lewis, Kenneth (Rutland)
Royle, Sir Anthony


Fowler, Norman (Sutton C'f'd)
Lloyd, Ian
Sainsbury, Tim


Fox, Marcus
Loveridge, John
St. John-Stevas, Norman







Shaw, Giles (Pudsey)
Stewart, Ian (Hitchin)
Walker-Smith, Rt Hon Sir Derek


Shelton, William (Streatham)
Stokes, John
Wall, Patrick


Shepherd, Colin
Stradling Thomas, J.
Walters, Dennis


Shersby, Michael
Tapsell, Peter
Warren, Kenneth


Sillars, James
Taylor, R. (Croydon NW)
Watt, Hamish


Silvester, Fred
Taylor, Teddy (Cathcart)
Weatherill, Bernard


Sims, Roger
Tebbit, Norman
Wells, John


Skeet, T. H. H.
Thomas, Dafydd (Merioneth)
Whitelaw, Rt Hon William


Smith, Cyril (Rochdale)
Thomas, Rt Hon P. (Hendon S)
Wiggin, Jerry


Smith, Dudley (Warwick)
Thompson, George
Wigley, Dafydd


Speed, Keith
Thorne, Stan (Preston South)
Wilson, Gordon (Dundee E)


Spence, John
Townsend, Cyril D
Winterton, Nicholas


Spicer, Jim (W Dorset)
Trotter, Neville
Wood, Rt Hon Richard


Spicer, Michael (S Worcester)
van Straubenzee, W. R.
Young, Sir G. (Ealing, Acton)


Sproat, Iain
Vaughan, Dr Gerard
Younger, Hon George


Stainton, Keith
Viggers, Peter



Stanbrook, Ivor
Wainwright, Richard (Colne V)
TELLERS FOR THE NOES:


Steel, David (Roxburgh)
Wakeham, John
Mr. Spencer Le Marchant and


Steen, Anthony (Wavertree)
Walder, David (Clitheroe)
Mr.Michael Roberts.


Stewart, Donald (Western Isles)
Walker, Rt Hon P. (Worcester)

Question accordingly agreed to.

Bill read a Second time.

Bill committed to a Committee of the whole House.—[Mr. Ashton.]

Committee tomorrow.

Orders of the Day — NATIONAL INSURANCE SURCHARGE [MONEY]

Queen's Recommendation having been signified—

Motion made, and Question put:—
That, for the purpose of any Act of the present Session to impose a surcharge, payable into the Consolidated Fund, on secondary Class 1 contributions under the Social Security Act 1975 and the Social Security (Northern Ireland) Act 1975, it is expedient to authorise the payment out of moneys provided by Parliament of any administrative expenses of the Secretary of State and of any other department of the Government of the United Kingdom incurred for the purposes of that Act.—[Mr. Denzil Davies.]

The House divided: Ayes 282 Noes 276.

Division No. 12.]
AYES
[10.19 p.m.


Abse, Leo
Campbell, Ian
Dempsey, James


Allaun, Frank
Canavan, Dennis
Doig, Peter


Anderson, Donald
Cant, R. B.
Dormand, J. D.


Archer, Peter
Carmicnael, Neil
Douglas-Mann, Bruce


Armstrong, Ernest
Carter, Ray
Duffy, A. E. P.


Ashley, Jack
Cartwright, John
Dunnett, Jack


Ashton, Joe
Castle, Rt Hon Barbara
Dunwoody, Mrs Gwyneth


Atkins, Ronald (Preston N)
Clemitson, Ivor
Eadie, Alex


Atkinson, Norman
Cocks, Rt Hon Michael
Edge, Geoff


Bagier, Gordon A. T.
Cohen, Stanley
Edwards, Robert (Wolv SE)


Barnett, Guy (Greenwich)
Coleman, Donald
Ellis, John (Brlgg &amp; Scun)


Barnett, Rt Hon Joel (Heywood)
Concannon, J. D.
Ellis, Tom (Wrexham)


Bates, Alf
Conlan, Bernard
English, Michael


Bean, R. E.
Cook, Robin F. (Edin C)
Ennals, David


Benn, Rt Hon Anthony Wedgwood
Corbett, Robin
Evans, Fred (Caerphilly)


Bennett, Andrew (Stockport N)
Cowans, Harry
Ewing, Harry (Stirling)


Bidwell, Sydney
Cox, Thomas (Tooting)
Fernyhough, Rt Hon E.


Bishop, E. S.
Craigen, Jim (Maryhill)
Fitch, Alan (Wlgan)


Blenkinsop, Arthur
Crawshaw, Richard
Flannery, Martin


Boardman, H.
Cronin, John
Fletcher, L. R. (likeston)


Booth, Rt Hon Albert
Crosland, Rt Hon Anthony
Fletcher, Ted (Darlington)


Bottomley, Rt Hon Arthur
Crowther, Stan (Rotherham)
Foot, Rt Hon Michael


Boyden, James (Bish Auck)
Cryer, Bob
Ford, Ben


Bradley, Tom
Cunningham, G. (Islington S)
Forrester, John


Bray, Dr Jeremy
Cunningham, Dr J. (Whiten)
Fowler, Gerald (The Wrekin)


Brown, Hugh D. (Provan)
Davidson, Arthur
Fraser, John (Lambeth, N'w'd)


Brown, Robert C. (Newcastle W)
Davies, Bryan (Enfield N)
Freeson, Reginald


Brown, Ronald (Hackney S)
Davies, Denzil (Llanelli)
Garrett, John (Norwich S)


Buchan, Norman
Davies, Ifor (Gower)
George, Bruce


Buchanan, Richard
Davis, Clinton (Hackney C)
Gilbert, Dr John


Butler, Mrs Joyce (Wood Green)
Deakins, Eric
Ginsburg, David


Callaghan, Rt Hon J. (Cardiff SE)
Dean, Joseph (Leeds West)
Golding, John


Callaghan, Jim (Middleton &amp; P)
Dell, Rt Hon Edmund
Gould, Bryan




Gourlay, Harry
Mackintosh, John P.
Ryman, John


Graham, Ted
Maclennan, Robert
Sandelson, Neville


Grant, George (Morpeth)
McMillan, Tom (Glasgow C)
Sedgemore, Brian


Grant, John (Islington C)
McNamara, Kevin
Selby, Harry


Grocott, Bruce
Madden, Max
Shaw, Arnold (Ilford South)


Hamilton, James (Bothwell)
Magee, Bryan
Sheldon, Robert (Ashton-u-Lyne)


Harrison, Walter (Wakefield)
Mahon, Simon
Shore, Rt Hon Peter


Hart, Rt Hon Judith
Mallalieu, J. P. W.
Short, Mrs Renée (Wolv NE)


Hattersley, Rt Hon Roy
Marks, Kenneth
Silkin, Rt Hon John (Deptford)


Hatton, Frank
Marquand, David
Silkin, Rt Hon S. C. (Dulwich)


Hayman, MrsHelena
Marshall, DrEdmund (Goole)
Silverman, Julius


Healey, Rt Hon Denis
Marshall, Jim (Leicester S)
Skinner, Dennis


Heffer, Eric S.
Mason, Rt Hon Roy
Smith, John (N Lanarkshire)


Hooley, Frank
Maynard, Miss Joan
Spearing, Nigel


Horam, John
Meacher, Michael
Spriggs, Leslie


Hoyle, Doug (Nelson)
Mellish, Rt Hon Robert
Stallard, A. W.


Huckfield, Les
Mikardo, Ian
Stewart, Rt Hon M. (Fulham)


Hughes, Rt Hon C. (Anglesey)
Millan, Rt Hon Bruce
Stoddart, David


Hughes, Mark (Durham)
Miller, Dr M. S. (E Kilbride)
Stott, Roger


Hughes, Robert (Aberdeen N)
Miller, Mrs Millie (llford N)
Strang, Gavin


Hughes, Roy (Newport)
Mitchell, R. C. (Soton, Itchen)
Strauss, Rt Hon G. R.


Irvine, Rt Hon Sir A. (Edge Hill)
Molloy, William
Summerskill, Hon Dr Shirley


Irving, Rt Hon S. (Dartford)
Moonman, Eric
Swain, Thomas


Jackson, Colin (Brighouse)
Morris, Alfred (Wythenshawe)
Thomas, Jeffrey (Abertillery)


Jackson, Miss Margaret (Lincoln)
Morris, Charles R. (Openshaw)
Thomas, Mike (Newcastle E)


Janner, Greville
Morris, Rt Hon J. (Aberavon)
Thomas, Ron (Bristol NW)


Jay, Rt Hon Douglas
Moyle, Roland
Tierney, Sydney


Jeger, Mrs Lena
Murray, Rt Hon Ronald King
Tinn, James


Jenkins, Hugh (Putney)
Newens, Stanley
Tomlinson, John


John, Brynmor
Noble, Mike
Tomney, Frank


Johnson, James (Hull West)
Oakes, Gordon
Torney, Tom


Johnson, Walter (Derby S)
Ogden, Eric
Tuck, Raphael


Jones, Alec (Rhondda)
O'Halloran, Michael
Varley, Rt Hon Eric G.


Jones, Barry (East Flint)
Orme, Rt Hon Stanley
Wainwright, Edwin (Dearne V)


Jones, Dan (Burnley)
Ovenden, John
Walden, Brian (B'ham L 'dyw' d)


Judd, Frank
Owen, Rt Hon Dr David
Walker, Harold (Doncaster)


Kaufman, Gerald
Padley, Walter
Walker, Terry (Kingswood)


Kelley, Richard
Palmer, Arthur
Ward, Michael


Kerr, Russell
Park, George
Watkins, David


Kilroy-Silk, Robert
Parker, John
Watkinson, John


Kinnock, Neil
Parry, Robert
Weetch, Ken


Lambie, David
Pendry, Tom
Weitzman, David


Lamborn, Harry
Perry, Ernest
Wellbeloved, James


Lamond, James
Phipps, Dr Colin
White, Frank R. (Bury)


Latham, Arthur (Paddington)
Prentice, Rt Hon Reg
White, James (Pollok)


Leadbitter, Ted
Prescott, John
Whitlock, William


Lee, John
Price, C. (Lewlsham W)
Willey, Rt Hon Frederick


Lestor, Miss Joan (Eton &amp; Slough)
Price, William (Rugby)
Williams, Alan (Swansea W)


Lever, Rt Hon Harold
Radice, Giles
Williams, Alan Lee (Hornch'ch)


Lewis, Ron (Carlisle)
Rees, Rt Hon Merlyn (Leeds S)
Williams, Rt Hon Shirley (Hertford)


Lipton, Marcus
Richardson, Miss Jo
Williams, Sir Thomas (Harrington)


Litterick, Tom
Roberts, Albert (Normanton)
Wilson, Alexander (Hamilton)


Loyden, Eddie
Roberts, Gwilym (Cannock)
Wilson, Rt Hon Sir Harold (Huyton)


Luard, Evan
Robinson, Geoffrey
Wise, Mrs Audrey


Lyon, Alexander (York)
Roderick, Caerwyn
Woodall, Alec


Lyons, Edward (Bradford W)
Rodgers, George (Chorley)
Woof, Robert


Mabon, Dr J. Dickson
Rodgers, Rt Hon William (Stockton)
Wrigglesworth, Ian


McCartney, Hugh
Rooker, J. W.
Young, David (Bolton E)


McDonald, Dr Oonagh
Roper, John



McElhone, Frank
Rose, Paul B.
TELLERS FOR THE AYES:


MacFarquhar, Roderick
Ross, Rt Hon W. (Kilmarnock)
Mr.Joseph Harper and


McGuire, Michael (Ince)
Rowlands, Ted
Mr.Peter Snape.


MacKenzie, Gregor






NOES


Adley, Robert
Body, Richard
Churchill, W. S.


Aitken, Jonathan
Boscawen, Hon Robert
Clark, Alan (Plymouth, Sutton)


Alison, Michael
Bottomley, Peter
Clark, William (Croydon S)


Amery, Rt Hon Julian
Bowden, A. (Brighton, Kemptown)
Clegg, Walter


Arnold, Tom
Boyson, Dr Rhodes (Brent)
Cockcroft, John


Atkins, Rt Hon H. (Spelthorne)
Braine, Sir Bernard
Cooke, Robert (Bristol W)


Awdry, Daniel
Brittan, Leon
Cope, John


Bain, Mrs Margaret
Brocklebank-Fowler, C.
Cordle, John H.


Baker, Kenneth
Brotherton, Michael
Cormack, Patrick


Banks, Robert
Brown, Sir Edward (Bath)
Corrie, John


Beith, A. J.
Bryan, Sir Paul
Costain, A. P.


Bell, Ronald
Buchanan-Smith, Alick
Crawford, Douglas


Bennett, Dr Reginald (Fareham)
Budgen, Nick
Critchley, Julian


Benyon, W.
Bulmer, Esmond
Crowder, F. P.


Berry, Hon Anthony
Burden, F. A.
Davies, Rt Hon J. (Knutsford)


Biffen, John
Butler, Adam (Bosworth)
Dean, Paul (N Somerset)


Biggs-Davison, John
Carlisle, Mark
Dodsworth, Geoffrey


Blaker, Peter
Chalker, Mrs Lynda
Douglas-Hamilton, Lord James







Drayson, Burnaby
Kellett-Bowman, Mrs Elaine
Rawlinson, Rt Hon Sir Peter


du Cann, Rt Hon Edward
Kershaw, Anthony
Rees, Peter (Dover &amp; Deal)


Durant, Tony
Kilfedder, James
Rees-Davies, W. R.


Dykes, Hugh
Kimball, Marcus
Reid, George


Eden, Rt Hon Sir John
King, Evelyn (South Dorset)
Renton, Rt Hon Sir D. (Hunts)


Edwards, Nicholas (Pembroke)
King, Tom (Bridgwater)
Renton, Tim (Mid-Sussex)


Emery, Peter
Kitson, Sir Timothy
James, R. Rhodes (Cambridge)


Eyre, Reginald
Knight, Mrs Jill
Rhys Williams, Sir Brandon


Fairbairn, Nicholas
Knox, David
Ridley, Hon Nicholas


Fairgrieve, Russell
Lamont, Norman
Ridsdale, Julian


Farr, John
Langford-Holt, Sir John
Rifkind, Malcolm


Fell, Anthony
Latham, Michael (Melton)
Roberts, Wyn (Conway)


Finsberg, Geoffrey
Lawrence, Ivan
Ross, Stephen (Isle of Wight)


Fisher, Sir Nigel
Lawson, Nigel
Rossi, Hugh (Hornsey)


Fletcher, Alex (Edinburgh N)
Lester, Jim (Beeston)
Rost, Peter (SE Derbyshire)


Fletcher-Cooke, Charles
Lewis, Kenneth (Rutland)
Royle. Sir Anthony


Fookes, Miss Janet
Lloyd, Ian
Sainsbury, Tim


Forman, Nigel
Loveridge, John
St. John-Stevas, Norman


Fowler, Norman (Sutton C'f'd)
Luce, Richard
Shaw, Giles (Pudsey)


Fox, Marcus
McAdden, Sir Stephen
Shelton, William (Streatham)


Fraser, Rt Hon H. (Stafford &amp; St)
MacCormick, Iain
Shepherd, Colin


Freud, Clement
McCrindle, Robert
Shersby, Michael


Fry, Peter
Macfarlane, Neil
Silvester, Fred


Galbraith, Hon T. G. D.
MacGregor, John
Sims, Roger


Gardiner, George (Reigate)
Macmillan, Rt Hon M. (Farnham)
Skeet, T. H. H.


Gardner, Edward (S Fylde)
McNair-Wilson, M. (Newbury)
Smith, Cyril (Rochdale)


Gilmour, Rt Hon Ian (Chesham)
McNair-Wilson, P. (New Forest)
Smith, Dudley (Warwick)


Gilmour, Sir John (East Fife)
Madel, David
Speed, Keith


Glyn, Dr Alan
Marshall, Michael (Arundel)
Spence, John


Godber, Rt Hon Joseph
Marten, Neil
Spicer, Jim (W Dorset)


Goodhart, Philip
Mates, Michael
Spicer, Michael (S Worcester)


Goodhew, Victor
Mather, Carol
Sproat, Iain


Goodlad, Alastair
Maude, Angus
Stainton, Keith


Gorst, John
Maudling, Rt Hon Reginald
Stanbrook, Ivor


Gow, Ian (Eastbourne)
Mawby, Ray
Steel, David (Roxburgh)


Gower, Sir Raymond (Barry)
Maxwell-Hyslop, Robin
Steen, Anthony (Wavertree)


Grant, Anthony (Harrow C)
Mayhew, Patrick
Stewart, Donald (Western Isles)


Gray, Hamish
Meyer, Sir Anthony
Stewart, Ian (Hitchin)


Griffiths, Eldon
Miller, Hal (Bromsgrove)
Stokes, John


Grimond, Rt Hon J.
Mills, Peter
Stradling Thomas, J.


Grist, Ian
Miscampbell, Norman
Tapsell, Peter


Hall, Sir John
Mitchell, David (Basingstoke)
Taylor, R. (Croydon NW)


Hall-Davis, A. G. F.
Moate, Roger
Taylor, Teddy (Cathcart)


Hamilton, Michael (Salisbury)
Monro, Hector
Tebbit, Norman


Hampson, Dr Keith
Montgomery, Fergus
Thomas, Dafydd (Merioneth)


Hannam, John
Moore, John (Croydon C)
Thomas, Rt Hon P. (Hendon S)


Harvie Anderson, Rt Hon Miss
More, Jasper (Ludlow)
Thompson, George


Hastings, Stephen
Morgan, Geraint
Townsend, Cyril D


Havers, Sir Michael
Morgan-Giles, Rear-Admiral
Trotter, Neville


Hawkins, Paul
Morris, Michael (Northampton S)
van Straubenzee, W. R.


Hayhoe, Barney
Morrison, Hon Peter (Chester)
Vaughan, Dr Gerard


Henderson, Douglas
Mudd, David
Viggers, Peter


Heseltine, Michael
Neave, Airey
Wainwright, Richard (Colne V)


Hicks, Robert
Nelson, Anthony
Wakeham, John


Higgins, Terence L.
Neubert, Michael
Walder, David (Clitheroe)


Hodgson, Robin
Newton, Tony
Walker, Rt Hon P. (Worcester)


Holland, Philip
Normanton, Tom
Walker-Smith, Rt Hon Sir Derek


Hooson, Emlyn
Nott, John
Wall, Patrick


Hordern, Peter
Onslow, Cranley
Walters, Dennis


Howe, Rt Hon Sir Geoffrey
Oppenheim, Mrs Sally
Warren, Kenneth


Howell, David (Guildford)
Osborn, John
Watt, Hamish


Howell, Ralph (North Norfolk)
Page, Rt Hon R. Graham (Crosby)
Weatherill, Bernard


Howells, Geraint (Cardigan)
Page, Richard (Workington)
Wells, John


Hunt, David (Wirral)
Pardoe, John
Whitelaw, Rt Hon William


Hurd, Douglas
Parkinson, Cecil
Wiggin, Jerry


Hutchison, Michael Clark
Pattie, Geoffrey
Wigley, Dafydd


Irving, Charles (Cheltenham)
Penhaligon, David
Wilson, Gordon (Dundee E)


James, David
Percival, Ian
Winterton, Nicholas


Jenkin, Rt Hon P. (Wanst'd &amp; W'df'd)
Peyton, Rt Hon John
Wood, Rt Hon Richard


Jessel, Toby
Pink, R. Bonner
Young, Sir G. (Ealing, Acton)


Johnson Smith, G. (E Grinstead)
Price, David (Eastleigh)
Younger, Hon George


Johnston, Russell (Inverness)
Prior, Rt Hon James



Jones, Arthur (Daventry)
Pym, Rt Hon Francis
TELLERS FOR THE NOES:


Jopling, Michael
Raison, Timothy
Mr.Spencer Le Marchant and


Joseph, Rt Hon Sir Keith
Rathbone, Tim
Mr. Michael Roberts.


Kaberry, Sir Donald

Question accordingly agreed to.

Orders of the Day — WATER SUPPLIES

10.36 p.m.

The Under-Secretary of State for the Environment (Mr. Kenneth Marks): I beg to move,
That this House, recognising the existing duty of United Kingdom Water Authorities to provide sufficient and wholesome supplies of water, welcomes the EEC Draft Directive on the Quality of Water for Human Consumption (R/2098/75) and notes that it will not affect the extent to which authorities in the United Kingdom will need to enter premises to take samples.
The draft directive which we are debating tonight is one of a series on water, covering both water in the environment and water for human consumption, which are in different stages of preparation in the Community. This one was published on 18th September 1975 and has been the subject of lengthy negotiations and consultations. It has already been debated in another place and considered twice by a Select Committee of this House.
I commend the Committee for its work and for drawing attention to some points of criticism. My Department has been able to satisfy the Committee on all its points except one, which it felt should have further consideration. This point concerned the right of entry to private premises for the purpose of ensuring compliance with the directive. I shall return to this point shortly.
The water supply undertakings in the United Kingdom had a statutory duty to provide a sufficient and wholesome supply of water—a duty which they have discharged well for many years. They are in a good position to meet the terms of this directive.
There are no statutory standards for drinking water in the United Kingdom. The statutes have placed a duty on water undertakings to supply wholesome water, but wholesome is nowhere defined. Statutory water undertakers have generally conformed to the World Health Organisation's recommendations, which have also been the basis for this directive. This draft directive sets standards for the quality of water for human consumption, including that used in the manufacture of food and drink, but excluding natural mineral and medicinal waters for which

separate community legislation is being prepared.
Annex 1 to the directive lists the parameters, which are divided into five groups. These are organoleptic—for example, taste and smell; physico-chemical—for example, magnesium and dissolved oxygen; undesirable in excessive amounts —for example, nitrates and mineral oils; toxic—for example, lead and arsenic; and microbiological—for example, total bacteria.
Water used in the manufacture of food and drink in such a way that member States are satisfied that the finished product presents no hazard to human health does not have to comply with the directive. In all other cases, the water used in the manufacture of food and drink has to comply only with the toxic and microbiological parameters plus any other parameters which member States consider affect the wholesomeness of the finished product.

Mr. Neil Marten: Mr. Neil Marten (Banbury) rose——

Mr. Marks: May I assure the hon. Gentleman that I shall take only five minutes and that I hope to reply at some length.
I now turn to the question of sampling. It is obviously necessary to check the water supply to ensure that it conforms to the standards in the directive. A table of frequency of sampling is laid down in the directive. In the case of small sources, that is those providing less than 1,000 cubic metres per day or serving fewer than 5,000 people, the frequency of sampling is entirely at the discretion of member States.
Although the directive lays down the frequency of sampling, it does not lay down the points at which samples are to be taken. It is clearly stated in the directive that the points of sampling should be determined by the competent national authorities. The 32nd Report of the Select Committee on European Secondary Legislation, &c., said that the right of entry to private premises for the purposes of ensuring compliance with the directive raised a question of importance.
This directive conveys no right of entry for this or any other purposes. Nevertheless, it may be necessary from time to time to check the water at the tap to ensure that the quality is good


throughout the distribution system. This is, of course, done at present. Such samples as are required are obtained either by invitation of the owner or occupier when some complaint is made about the water supply or by requests of the water undertaker or local authority.
The evidence is that householders are usually pleased to grant such a request in the interests of ensuring that their water is wholesome. We see no reason why the present practice should not continue. There are in existence powers to enter premises by water authorities, local authorities and factory inspectors for the purpose of sampling water supplies. We do not envisage that these powers will be required for the purposes of the directive.
At the time when the Select Committee considered the directive, it was not entirely clear to what extent member States would have discretion in choosing the points of sampling. Subsequent negotiations in Brussels have made it clear that the directive lays down only the frequency of sampling. The place of sampling is at the discretion of the member State.
In general terms, we do not expect to have difficulty in complying with the terms of the directive. There are, however, two points on which we disagree with other member States which we hope can be resolved in the remaining stages of negotiations.
The first of these concerns lead. The current World Health Organisation standard for lead is 100 micro-gram per litre but the value proposed in the directive is 50 micro-grams per litre. All public water supplies in the United Kingdom would comply with the proposed EEC standard for water in the distribution system. Problems arise however when the water gets into old lead pipes. Lead is poisonous but its ingestion from water forms only part of the body's intake. The other two sources are from food and from the air. The amount absorbed from water is normally much less than that from food. Air makes an insignificant contribution.
There is no medical evidence that continued ingestion of water containing 100 micro-grams per litre of lead is harmful. There is, therefore, no medical case for lowering the limit to 50 micro-grams.

There is much we have still to learn about the problems of lead in the environment. Work is going on to solve these problems. Until the necessary work has been done we feel that we should not undertake expenditure on achieving a value for lead in water which, on the evidence so far available, is unnecessary.
The second point on which we disagree with our partners is on revision of the directive. As our knowledge improves, it may be necessary to change the values of some of the parameters in the annex to the directive. It is proposed to establish a committee on technical progress to make such changes. The committee would be able to make changes by majority decision. Any change in the parameter values might involve expenditure in order to meet it. We therefore believe that such changes should be subject to the same process of consultation as the remainder of the directive.
I hope that I have covered the outstanding point which has been raised by the Select Committee and outlined the two remaining points of difficulty which we hope to resolve in the remaining negotiations. We think that this directive is an important part of the Committee's environment programme and one with which we are confident we shall have little difficulty in complying.

10.45 p.m.

Mr. Arthur Jones: The Minister has covered succinctly and comprehensively many of the points that have been raised by this directive. He has had an easy run so far but I think that perhaps some of my right hon. and hon. Friends—and some of his own right hon. and hon. Friends—will be lying in wait to question him on the mechanics and perhaps the validity of parts of the directive. I am sure that in no way can the objectives of this directive be questioned.
When the EEC draft Directive, R 2098/75, was before the Council of the European Communities the subject matter read:
Proposal for a Council Directive relating to the quality of water for human consumption.
When the debate in the European Parliament was opened Lord Bethell referred to the fact that tap water:
will, once this directive is implemented, become of a uniform quality in all of the nine countries.


In a comprehensive speech on that occasion Lord Bethell emphasised—and we must agree with him—the utmost importance of safe drinking water. I am sure that I am not alone in recalling numerous occasions when water has had to be boiled before being used, either for purposes of dilution or for a brew-up. How much more convenient it is simply to turn on the tap.
Lord Bethell referred to the fountain of life. We are, if I am quoting correctly, invited to drink freely—not in cost terms in the context of the substantial increases we have seen in water charges. We must be able, with no fear of adverse consequences, to use water freely and without limitation. However, advice is one thing, its fulfilment quite another. Water provision is an involved, costly and complicated matter.
We are concerned here with availability and adequate standards in terms of community health, which is of the utmost importance. Clearly there can be no challenge in these terms to the objectives of the directive. Standards in this country require the provision of a sufficient and wholesome supply. I like to think that in fulfilment of these criteria we have a supply service that is second to none.
There are variations in the sum total of the constituents of water from differing sources. Standards and parameters of requirements must vary quite significantly in some respects. For example, in Bedfordshire, with which I am familiar, we draw a substantial amount of our water from the river, which flows through limestone. In another sector, it is pumped up from the greensand. The constituent parts of limestone carried in the river and greensand from underwater aquifiers are significantly different.
I question what Lord Bethell said in the Brussels debate when he referred to "uniformity of quality." I do not think that uniformity of quality is capable, or necessary, of fulfilment. These observations, particularly in the area of specific additives, are relevant. My hon. Friend the Member for Kensington (Sir B. Rhys Williams) spoke in the European Parliament debate about the addition of fluorine compounds. I noted, too, the comment by Dr. Hillery, the Vice-President

of the Commission, who said that a conference is proposed to deal with the question of all additives to drinking water.
The Minister mentioned the problems associated with tests proposed at the point of use. The Thirteenth Report of the Select Committee on European Secondary Legislation, &c., Session 1975–76, dated 10th March 1976, stated:
It appears that the Directive as drafted would apply to water at the point of use. If this is the case, public authorities will be required to monitor water on the consumer's premises to ensure that it conformed to the standards laid down. The powers available to local and water authorities to enter private premises do not appear to provide powers of entry clearly linked with the purposes and with the full range of the draft Directive. Even if the available powers could in some cases be used for the purposes of the Directive it is questionable whether they should be.
The Minutes of Evidence record that some months earlier—on 9th December 1975—Mr. Dorrington, Assistant Secretary in the Water Division at the Department of the Environment, said:
… all our water authorities and our local authorities already have powers to take samples from the tap if they wish to do so, therefore, we should not be in any legislative difficulty on that matter.
It appears that the evidence that Mr. Dorrington gave to the Select Committee was not accepted when it reported.
I have made inquiries and discovered, on looking at the practical considerations of water testing, that throughout a water supply system there are points at which it is customary to make tests and there is a particular connection point which makes that provision possible. Generally speaking, experience shows that there are no access problems. In fact, people are quite keen, if there is any question of their water being sub-standard, to allow entry so that it should be tested. That is understandable. The question here is rights of entry. I should be interested to hear the views of hon. Members on this matter.
One of the difficulties for the water suppliers is that their responsibility to supply wholesome water is to the point of entry to premises and what happens beyond the point of entry is the responsibility of the owner or occupier. If the tests are to be made within the premises at a tap point, there is the danger that the customary and recognised responsibility for the water supply authorities


will be significantly extended. This is an important point to which the Minister should address himself, because from the point of entering on to premises it is the water customer's responsibility to ensure that the supply that he receives from the tap is wholesome, that his staff on the premises receive that sort of supply, and, indeed, that those invited on to the premises are ensured of a wholesome water supply.
Much depends on the type of system, whether it is a direct supply from the point of entry into the premises to the tap or whether it goes through other equipment. Does it go through a tank equipment with a cistern, for example? Does it go through a water softening device? Various questions arise.
The Minister mentioned the question of lead piping which is, and has been for many years, commonly used in internal water supply systems and can pick up a deal of lead content.
For suppliers to cover circumstances such as these and to monitor would greatly extend the responsibility of water supply authorities. There is clearly a joint responsibility between water suppliers and public health authorities. Have the public health authorities the right to take water samples for the purposes of testing to see that the supply is wholesome? There is an important question of principle here and it will be interesting to hear what the Minister has to say.
Generally we welcome the objectives of the draft directive and, indeed, they must be welcomed in all parts of the House. But there must be recognition of the variation of water content and of the different chemical contents of water—subject, of course, essentially to the overriding consideration that the supply is of a quality fit for human consumption.

10.55 p.m.

Mr. Donald Anderson: This is a limited measure, and with the worst will in the world it would be difficult to find anything sinister about it, because it does not appear to be in any way a drive to some form of "Euro-water". There is to be no uniformity, as the noble Lord, Lord Bethell—quoted by the hon. Member for Daventry (Mr. Jones)—appeared to suggest. Indeed, in reading through the draft directive, flexibility

appears to be very much written into all the requirements, in part because of the factors mentioned by the hon. Member, such as the different geographical elements which affect the several parameters.
The directive essentially sets down the quality for public health reasons and the appropriate monitoring procedures. I have only two questions to ask. The first is on fluoridation. It appears that fluoridation is not relevant to tonight's debate, in that the directive sets the maximum content at only 1·5 milligrams per litre, which is well above the fluoride levels in the several schemes in operation in this country, which roughly on average are at 1 milligram per litre. Given the revision procedures which my hon. Friend the Under-Secretary of State set out, presumably there would be no danger of these procedures in any way being used for enforcing fluoridation in the United Kingdom.
Secondly, concerning lead levels, my hon. Friend suggests that the directive's recommendation is for 50 micrograms per litre, and that all the authorities in the United Kingdom can adapt to this without any difficulty. He stressed that medical opinion was divided on the health effects of lead. We went over this ground before in the debate on lead content in petrol. It is clear that medical opinion is divided, but this is an uncertain and potentially very dangerous field. I hope the Government will not be too restricted by the public expenditure constraint, which my hon. Friend mentioned, where there is a genuine fear among many sectors of the Community about the public health dangers.
It appears that the debate tonight is taking place only because of the Select Committee's concern about the supposed powers of entry. The hon. Member for Daventry mentioned that there is a real question of principle as to the point at which the sampling procedure is to be taken. I am not sure that this is such a major factor, because presumably there is likely to be very little difference in quality between the supply of water at, say, the point of entry to the household the tap and at any point along the distribution system. The only elements which could affect that would be the old lead pipes or other things which could have a relatively marginal effect on the


end product. Therefore the sampling could be at any point of the system.
The Select Committee's fear appears to be more on the ground that an Englishman's home is his castle and on the ground of civil rights. This is a question of the legal powers currently available to the various statutory undertakings, including the water undertakings. Certainly my understanding is that all these undertaking already have that power. Indeed, most householders, one assumes, would be only too delighted to facilitate the entry of the relevant officials to ensure that their water was of the proper quality. This again appears not to be a real objection. Therefore one is puzzled why the Select Committee, in the light of this knowledge of the existing powers, has still persisted in its concern on this matter.

11.0 p.m.

Mr. J. Enoch Powell: The hon. Member for Swansea, East (Mr. Anderson) found this directive not sinister. I do not think that "sinister" is the term I would apply to it. But I do not agree with him in questioning that this is an appropriate subject to be debated on the Floor of the House, and not only because of the question of rights of entry, which was specifically raised by the Scrutiny Committee.
The motion is so effusive as to use the term "welcomes". In one respect, this wording is to be welcomed, and I hope that it represents a departure which will become standard form from the old, bad custom of merely "taking note" of these documents. At least it is helpful when the House is presented with a specific proposition with which it can agree or disagree. But in no other sense would I welcome the contents of this directive.
On the contrary, I think that it is perfectly absurd and futile that the EEC should be concerning itself with standards of water supply inside this country. The Minister admitted that his introductory remarks were brief, but there was one essential which they did not contain and which would have been expected—an explanation of how it comes about that the Community is concerning itself at all in seeking to establish uniform or uniform minimum standards of water supply throughout the Community.
We have not—at any rate yet—heard the suggestion that it is necessary, in order

to secure freedom of trade within the Community, that we should all drink water of the same standard. It may be, admittedly, that there are some marginal effects on some items which enter into trade between the various parts of the Community, but if so they must be a minuscule element of the effects of water supply in the various countries and are obviously a subject which can be more efficiently and more directly dealt with in directives which apply to particular articles of commerce which might be affected.
I think that there is a certain impertinence, even, in a directive of this sort coming to the United Kingdom from the Continent of Europe. I do not know what your custom is, Mr. Deputy Speaker, in your travels on the Continent, but my practice—and I think that it is a wise one—is, outside the major towns, never to drink water from the tap and never drink carafe water, and I observe that it is not only the inhabitants of these happy islands who are liable to illness if they infringe those general rules of hygiene when travelling on the Continent, because local inhabitants themselves are commonly observed not to be prepared to drink water from the tap or from carafes in restaurants but to purchase only bottled water, often at considerable expense and inconvenience.
Now these people, who are far behind the general level of the water supply which prevails in this country, have the impertinence to set up this cat's cradle —and we are only at the start of it, as the Explanatory Memorandum makes clear—of regulations in order that we in this country, who have been perfectly capable of improving and maintaining an ever-improving standard of water supplies, shall be brought into some degree of uniformity with what prevails, or, rather, does not prevail, upon the adjacent Continent. This is an example, and an example which fully calls for debate on the Floor of the House, of Community legislation for legislation's sake.
This is a matter which each individual country in the Community is perfectly capable of regulating without interference by the Community authorities.
The water and public health authorities in this country are perfectly capable


of continuing as they have been for a century or more past. Our Public Health Acts include all the powers and requirements necessary to do this job to satisfaction and for the purposes of public health. This is the kind of creeping interventionism——

Mr. Marten: Etatism.

Mr. Powell: —my hon. Friend the Member for Banbury (Mr. Marten) calls it etatism, and not unjustly—into the sphere of purely domestic concern which, if it is not checked, will be rapidly extended and accompanied by the growth in the vested interest in the bureaucracy which inevitably comes with it.
So far from feeling that the House should be welcoming the directive, and so far from agreeing with the Government in going along with the Community, it should be understood from this debate that we do not want and do not need Community legislation of this kind. It is irrelevant to the economic purposes of the Community. It can be relevant only to its most exorbitant political purposes, and it is something that this House and the country can do very well without.

11.7 p.m.

Mr. Ted Leadbitter: I should like to fall into line with the right hon. Member for Down, South (Mr. Powell) who, as usual on these matters, has hit the nub of the situation. This country has an excellent record in the provision of water supplies, a record of which we can be proud.
I understand that our water supplies are the subject of a Green Paper. This is one of those subjects that Parliament should be free to determine in the way that historically we have found most useful, that is, by working with and consulting all the interested bodies so as to provide consumers with the best possible service and the highest standards of health protection.
The Community has intruded upon a sovereignty. That intrusion borders upon an impertinence. For many years I have camped, caravanned and motored through the smaller villages and townships of France, Germany, Italy and elsewhere in Europe. I can confirm that the inhabitants of these areas are extremely cautious over their use of water from outside

taps, which are often situated near latrines.
Who in the United Kingdom is afraid to take water from any tap, be it in village or town? Who for one moment would question the methods of caring for and maintaining our reservoirs? Who would question the daily and nightly testing of our water? If the Common Market wants advice on standards, it should come to this country for it.
It appears that the Government have, once again, come along with nice words to say that they welcome this. I understand that the hon. Member for Daventry (Mr. Jones), who has approached this matter in his usual fair-minded and objective way, has not contravened what might be called good parliamentary practice. We are not here to question good parliamentary practice but whether Parliament is having its time wasted on matters with which we can best deal ourselves and which should not be lost in a morass of legislative and documentary work.
These documents go back some years. The time lag on these matters in the Common Market is alarming. I would have thought that any Minister worth his salt would go to the Common Market and say "Look, mind your own business!"
I am against the Common Market. I make no bones about that. The whole objective has been to achieve some form of economic unity. Strong reservations have been expressed in this House over sovereignty and monetary policies, but there have been margins of agreement between both sides on economic unity—although I disagree because I think it is self-defeating. On topics such as water we should have a right to determine for ourselves because we have the highest standards.
Who are we to allow our business in the United Kingdom to be placed in the hands of those people in that large building in Brussels? They go on that circus to Strasbourg every three months in order to keep the peace over some local triviality. They do not know the business of water provision in the United Kingdom. If I had to make a choice between drinking water in the United Kingdom or anywhere on the Continent, the choice would be here. We have the highest standards.
The House of Commons should send a message to the Common Market. The right hon. Member for Down, South has been consistent. Some of my hon. Friends have been consistent. We are not questioning the objective or telling the rest of the EEC that they are wrong to seek higher health standards. But we have a right to say to the rest of the Common Market, "Mind your own business. We are the pacemakers in this game."

11.13 p.m.

Mr. Jim Spicer: It is seldom that during European debate I find myself in sympathy with the right hon. Member for Down, South (Mr. Powell) and the hon. Member for Hartlepool (Mr. Leadbitter), but I do tonight. But they have both missed the point. The noble Lord, Lord Bethell, who spoke during the debate in the European Assembly, also missed the point when he talked about uniform standard. That is not the objective. We are trying to achieve minimum standards below which no one will fall.
Hon. Members have referred to their travels on the Continent and to problems there. I have every sympathy. and I know the problems that can arise. This is not an adjacent Continent. It is our Continent, and about 10,000 people from these islands travel in Europe every year, sometimes at their own risk.
We should take pride that we have nothing to fear from inspection of the quality of our water. We can live up to any standards. We set an example to the rest of the Community. It is easy to say that this is an impertinence on the part of the Community. but it is not that at all. If the hon. Member for Hartlepool has listened to the debate in Committee, and in the European Assembly, he would realise that the Community is looking to us for a lead. I am proud of that. They expect us to set a standard—which in fact we already set. We should stand out against the setting of falsely high standards by the Commission. It falls into this trap time and again.
The Minister referred to the standard of lead content and mentioned 100 micrograms per litre and the proposal to reduce it to 50 micrograms. I have no time for this trivia and nonsense. I look for a common, uniform standard to safeguard

the ordinary people living in the Community.
I believe that this is what the document sets out to do. I agree that it goes too far beyond that, that it is too detailed and complicated and that it has become fair game for those who wish to mock the work of the Community which, in terms of public health and the environment, is right in basic essentials.

11.16 p.m.

Mr. Nigel Spearing: I agree with the hon. Member for Dorset, West (Mr. Spicer) that most hon. Members would not agree with Lord Bethell, who has a wrong view of what drinking water is about. I understand that the specialists say that there are no absolutes in the purity of water, at least in this country's main system.
However, I disagree with what the hon. Member for Dorset, West said about example. It may be that in our public water supply we enjoy a standard not always found throughout mainland Europe, but if there has to be a raising of standards, it need not necessarily be done through the Community. The World Health Organisation has European standards which are referred to in the document before us. Additional standards may be necessary in connection with ions, but it would have been better if the Community had adopted WHO standards or, if those standards had been thought inadequate, changed them.
There is surely no need to have a colossal bureaucracy learning all the intricacies of the complicated matter of water supply, going through many official consultations and to some expense to reach a standard of water which might be better assessed by the WHO anyway.
I understand that there is also an organisation called EUREAU, comprising the water authorities of a number of countries. I suspect that it goes beyond the boundaries of the EEC. Surely that would have been an alternative or at least another organisation which could have harmonised with the WHO to produce an international standard if one were required. It would have had the additional advantage of extending beyond the boundaries of existing members of the Community.
I hope that the Minister can say why we did not consider, as a nation member


of the Community, using existing organisations instead of going through the lengthy and complex procedures of having European regulations.
The motion welcomes the draft directive and notes that it will not affect the extent to which authorities in the United Kingdom will need to enter premises to take samples. That, in effect, is what the Minister said in his opening speech. That is not what the undated Explanatory Memorandum says. I am becoming tired of complaining about undated memoranda from this Government because they have large numbers of well-qualified people to help them. We should not have undated memoranda to EEC documents which are subject to change.
Paragraph 14 of the memorandum states:
It is now proposed that member states should be able to lay down the points of sampling
But when opening the debate the Minister did not say that. He said that it had now been "decided" that member States should be able to lay down the points of sampling. My hon. Friend's remarks are compatible with the terms of the motion but incompatible with the signed memorandum of his hon. Friend the Minister.
I cannot find the paragraph—if it exists—which either says that the point of sample will be at the tap—which was the original proposal—or which describes the modification which has been agreed and lays down that the point of sample will be at the discretion of the member State. The Minister appears to agree with me. We are therefore being asked to welcome a directive which allows sampling at the discretion of the member State.
Although some may laugh about harmonisation of water, we have some incongruity in the document. My hon. Friend said that notwithstanding that member States will be able to choose where sampling will take place, from time to time sampling from the tap will be necessary. Why? That may be wise or good, but is it necessary?
I am not a member of the Select Committee which considers these issues but I take an interest in water and I have contacts with the National Water Council. In evidence to the Committee the

Council said that its powers would not extend this far. The Council said:
These bye-laws are not easy to enforce as it is, and the Council must make the obvious comment that there would be very difficult problems in enforcing mandatory standards at the tap. … Water authorities would be most reluctant to engage any large inspectorate required to enforce the EEC directive or to incur the odium and the expense of frequent intrusion into private households.
Perhaps what the Council said is not necessary because, as my hon. Friend says, sampling will be at a point decided by the member State. But that is not in the document and the Minister said that there would be need to go to the tap. I hope that he will clarify the rather muddy water contained in the document.
Two other minor matters arise. The first concerns the National Water Council's comment on coliform content. In this country we have a minimum requirement of one to two milligrams per litre whereas the EEC insists upon nothing. The National Water Council asks why the EEC insists on what appears to be such a high standard.
The second matter—it may involve a typing error—concerns nitrates. An interesting article appeared in the November issue of "Water" which shows that due to our agricultural practices we have up to 30 milligrams per litre of nitrate in water percolating chalk and Bunter sandstone. The World Health Organisation's recognised limits are between 11·3 and 22·6 milligrams per litre. The National Water Council document points out that the EEC is insisting upon standards which are more rigorous than those of the World Health Organisation, but in the print before us, on page 25, the nitrate level is shown as 50 milligrams per litre, which is nearly five times the WHO standard. There seems to be some misapprehension here. If the WHO stanwards are a maximum of about 22, the EEC standard, according to this document, is well in excess of that, although the National Water Council says that it is well below it.
Perhaps this is again one of the amendments about which we have not heard. I do not expect my hon. Friend the Minister to be able to reply to that point tonight because it is rather detailed. However, he might care to write to me about it later, because nitrate concentration is the cause of some concern although a lot of work is being done on it.
Finally, I have in my hand the November Bulletin of the Food and Drink Industries Council. That Council has been much concerned with this issue. The bulletin contains a rather important paragraph about water, and refers to the exercise of the FDIC Water Quality Sub-Committee in respect of the European CIAA organisation, of which the FDIC is a member. It says,
Much has been learned from this exercise. In particular, the value of the opportunity that CIAA provides for UK industry to influence the views of the European food and drink industries as a whole and thereby the European legislators. Whilst the long-established channel of influence via the UK government representatives will remain vital, the advantages of an increasingly effective CIAA are now becoming apparent.
Therefore, on perhaps the unlikely subject of water, we have a statement from a national body of manufacturers in Britain to the effect that because of the pressure that it has been able to bring through the CIAA—and presumably it is pressure on the EEC—while it pays lip service and says that the long-established channel of influence via the United Kingdom Government is still important, it is getting some results and is making, as implied, almost better headway, perhaps, by going to the European channels.
That is something that the House should note, because on the unlikely subject of water it shows that the power of not only the British Government but the British Parliament is being eroded.

11.28 p.m.

Mr. Peter Emery: In this short debate I had intended to pose only two questions to the Minister. However, it is worth noting that often these short debates, particularly on European subjects, bring to the Floor of the House debate in the real sense, which is frequently something missing with the more set speech and, supposedly, on grand occasions.
In one small way I agree with what was said by the right hon. Member for Down, South (Mr. Powell), echoed by the hon. Member for Newham, South (Mr. Spearing). It is of considerable note that the Government, in the way that the motion is placed before us, have taken a recommendation of the then Procedure Committee. We did not have two Procedure Committees at the time. The Procedure

Committee urged that when European debates came to the Floor of the House, the motion should have some meaning and not be just a "take note" motion —a vote against which would mean very little. The recommendation was that if it could be specifically said that the Government were welcoming or being critical of an EEC directive, this would be of benefit, and that it ought to be made clear to the House whether the Government could in any way comply with it. The fact that this has been possible is a step in the right direction, and one that the Government business managers should emulate in future.
I agreed with much of what the right hon. Member for Down, South said, but I think that he reached exactly the wrong conclusions from the evidence. He was worried and concerned, as was the hon. Member for Hartlepools (Mr. Leadbitter), about provisions for taking water from the tap in a number of European countries. I do not accept that what the right hon. Gentleman said applies to all European countries. Denmark and Germany cannot comply with the standards that we require. If the right hon. Gentleman cannot with impuity drink from the tap in some European countries, that shows precisely the need for this kind of directive in obtaining a minimum standard.
The remarks of my hon. Friend the Member for Dorset, West (Mr. Spicer) were most apposite—that we were seeking not absolute standardisation but a minimum standard for the whole of Europe. I would very much welcome such a standard.
The Minister, like every other hon. Member, will naturally be concerned about the rise in water rates, which every part of the country has suffered, is suffering and looks likely to go on suffering. The chief executive of one of the largest water authorities said recently that authorities must be concerned about demands for excessive water purity, which might be unnecessary for ordinary health reasons. In addition, he said, the greater the purity demanded the more massive the cost involved.
Does the Minister consider that the directive demands an unnecessary degree of purity? Is there any way in which, by our own standards, we could simplify our purification procedures and save considerable


sums of money? That would be appreciated by the ratepayers.
To ordinary people, the answers to those questions would be much more interesting than most of this debate. My only other criticism of the directive would arise if we were required to take steps that were most costly than the Minister and his expert advisers believed were necessary.

11.35 p.m.

Mr. Jim Craigen: I should like to suggest to the hon. Member for Honiton (Mr. Emery) that the experience of last summer would indicate that the problem facing the United Kingdom is a shortage of water in various parts of England and Wales rather than a need to standardise quality throughout the country. We can pass all the directives we like, but we shall not change geography, and the quality of water in the United Kingdom varies because of geography.
There are three matters that I should like to take up with the Minister. The first concerns the Explanatory Memorandum from the Department of the Environment. As it concerns Scotland, I am glad to see present my hon. Friend the Member for Glasgow, Queen's Park (Mr. McElhone)—an Under-Secretary of State for Scotland. The memorandum says:
It is probable that implementation of the directive could be achieved by administrative arrangements. But, if implementation could not be achieved by agreement with the regional and island councils, subordinate legislation might be required…".
Does this mean that the House will have to be involved in additional legislation during the coming parliamentary Session if we cannot get such administrative agreements with regional and island authorities?
Secondly, how much is all this going to cost the water authorities? The rate support grant is being reduced for local authorities in England and Wales and in Scotland. Are we at the same time putting additional burdens on water authorities?
Thirdly, there is a local matter with which my hon. Friend the Member for Queen's Park will be conversant. It concerns the lead content of the water pipes serving the Glasgow area. Earlier this year there was considerable anxiety about

certain medical effects of that lead content. I understand that Professor Goldberg, of Glasgow University, has been doing some work on the medical effects of a high lead content. Can the Minister say how that work is progressing? A grant is payable in respect of it by the Scottish Home and Health Department.

11.37 p.m.

Mr. Neil Marten: The hon. Member for Newham, South (Mr. Spearing) raised one or two issues requiring clarification in Brussels following which they should be brought back to the Scrutiny Committee as amendments to this draft proposal. I totally agree with him that there is so much confusion that the Minister has a duty to bring back the directive as a properly amended legislative document for the Scrutiny Committee to consider, so that it may recommend amendments as a matter of interest, but not for debate, or for debate again if they are sufficiently important. I hope that that sensible proposition will be accepted by the Minister early in his reply to the debate.
My hon. Friend the Member for Dorset, West (Mr. Spicer) said that the Community looked for a lead from the United Kingdom, as we should see if we read the report of the debate in the European Parliament. I have read those speeches and I have the report here with me, but I cannot see anybody looking for a lead from the United Kingdom—unless the report of that debate has been forgotten.
I join those who ask why we need this provision. We operate perfectly wholesomely to the World Health Organisation's standards. Why cannot we pass a simple regulation to say that other members of the Community shall adopt the World Health Organisation's standards, too? Everybody would then be happy, not in a Community way, but moving towards the WHO standard. That would be convenient to everyone in every country.
I disagree with the right hon. Member for Down, South (Mr. Powell). One of the first things I do when ever I go to a foreign country is to have a glass of water from the tap in the bathroom. It may be in Cairo or Rio de Janeiro. I have done it all my life. I have been to many countries, and I have never been ill, simply because I have inoculated


myself by the very simple principle of drinking water wherever I go. If we become too prissy with draft directives of this sort, which are tighter than the World Health Organisation rules, when we step over the ever-rising tariff wall of the Common Market we shall all drop like flies through illness because we have not inoculated our bodies against these terrible foreign things.
When the right hon. Gentleman says that the Continentals drink special bottled water, I agree, but it is not because their own water is impure. Those bottled waters are laxatives. There is a tendency to constipation on the Continent. I do not mean to be unkind but it is true. I am being serious.
In the European Assembly debate there was mention of trade. Lord Bethell, the rapporteur, who had gone into the matter in depth, said:
Various products are also manufactured with the help of tap water and it could become a barrier to trade, were it found that water was being used in the manufacture of various products which did not meet the health standards of one or another country.
What is the evidence that water has ever been found to be a barrier to trade in manufactured goods? There must be much evidence on the basis of which Lord Bethell made that statement, and we are entitled to hear it. Lord Bethell said the same about tourism:
It therefore seems desirable, from the trade point of view and from the tourism point of view perhaps, that water should be brought into a certain uniform category throughout our countries and this is what is proposed.
To look into the mind of Lord Bethell, who went into the matter in such depth, one has only to read his peroration, in which he said:
I must confess that I am excited by the idea that water, the fountain of life, should be of a uniform quality and degree of safety from Jutland on the Skagerrak to Sicily in the Mediterranean and that everywhere throughout the Community it should be safe to drink this water.—(Applause)." 
That sets the tone of what lies behind the directive.
When we get down to details we find that there are certain exceptions. In paragraph 13 of the Department of the Environment's Explanatory Memorandum we read:
The difficulties of the food and drinks industry will be much reduced by a provision in the directive allowing water which is not

of the quality required by the directive to be used in certain food and drink processes provided the final products are not harmful to human health when consumed.
But that is the present position. Why are we having this directive, if there is to be this relaxation, this breaking of the rules?
Whisky is a category on its own. Mr. Hillery, answering the Assembly debate on behalf of the Commission, said:
there are, of course, exceptions made for soft drinks and whisky, which, I think, is reasonable. I would not like to interfere with that trade.
Why not? Has he a vested interest in drinking whisky? I find this curious. When somebody likes something, he says "You need not obey the rules". I do not want to harm our export trade, but I must say that we have not a clue where the water comes from that goes into the whisky. It is kept secret. It is water from the burns, which may be the one factor that gives me a headache when I drink whisky. It may be very impure. We should know more about that.
I repeat what has been said about the cost. What will be the cost over the long term? Can we afford it? Should we afford it? Is it a waste of money? How many extra officials will be necessary to implement the proposals in this directive? Perhaps we could have answers to those questions.

11.46 p.m.

Mr. Ivan Lawrence: I should like to make one observation and to ask one detailed question.
My observation is that while I always listen with pleasure to the words of my hon. Friend the Member for Banbury (Mr. Marten) and the right hon. Member for Down, South (Mr. Powell) because they are so good at debunking the European Economic Communities, I do not find it a very edifying spectacle for my hon. Friend, as it were, to adopt the position "We are all right, Jack, we have very good water, we do not need to share the results of our experiences and high standards with anybody else, we might as well clear out of this organisation because we do not need what it is determined to give us."
I should have thought that we could be proud of our good water supplies and seek to be a little less selfish towards those


who are less fortunate than ourselves, particularly when it does not cost us much—I hope that it does not—to maintain these high standards as a result of this directive.

Mr. Marten: I am not being selfish; I merely want our colleagues in the Common Market to adopt the same World Health Organisation standards as we have. It does not concern us at all. Let them get on with it.

Mr. Lawrence: It does concern us, because we are part of that organisation. We should continue to do what we can to hold it together and to make it work as successfully and happily as we can.
I come now to my question, which concerns Article 6. That article provides that
The Member States shall take all necessary steps to ensure regular monitoring of the quality of water intended for human consumption, particularly in order to check the true concentration of the different parameters measured.
That puzzles me in connection with fluoride. The matter is referred to in the annex to the directive as one of the "Undesirable or Toxic Factors" which can be found in water. I understand that it lays down a maximum concentration of 1·5 milligrammes per litre.
I ask my question in relation not only to what the Common Market is seeking to get us to conform to but to our Government's attitude to fluoridation. What use is there in laying down a maximum concentration such as that unless there is some agreement about what is meant by an optimum dose?
I asked the Secretary of State for Social Services
what he considers to be the optimum does of fluoride which: (a) children and (b) adults can consume daily consistent with the complete absence of dental fluorosis and certain health safe.
We are concerned—the Minister will recall—with producing positive good health, not just with the absence of bad health. The answer was:
Fluoride is naturally present in varying proportions in much of the diet and the intake consequently varies from person to person and from day to day.
That is interesting, but he then goes on to draw the conclusion that:
It is therefore impracticable to state an optimum dose

—as good a non sequitur as ever I have heard—and he adds,
and the purpose of fluoridation is not to provide a specific dose of fluoride but to reproduce the beneficial effects of the most satisfactory proportion found naturally in drinking water, namely, in temperate climates, one part of fluoride per million parts of water. Extensive studies here and abroad have shown that this proportion of fluoride in drinking water, combined with the intake from the diet, is not associated with any harmful effect in children or adults."—[Official Report, 8th November 1976 ; Vol. 919, cc. 53–4.]
I do not find that satisfactory, in the light of a vast amount of experience accumulated in the United States, where fluoridation has been going on longer than in this country, which shows that there are some possible harmful effects from fluoridation.
I am concerned that the Minister does not seem able to answer the question "What is the optimum dose?". I asked the question again on 26th November. I asked "Why it is impracticable to state what would be an optimum dose, and received the answer
because of normal variations in dietary intake".
The fact that there can be a variation in the amount of fluoridated water that a person drinks does not answer the question "What is the optimum dose?" The answer continued:
the object of fluoridation was not to provide a specific dose of fluoride but to reproduce the effects of the most satisfactory concentration found naturally in water supplies."—[Official Report, 1st December 1976; Vol. 921, c. 151.]
It then gave the established wisdom that there has been a United Kingdom report on the first 11 years and that the practice is completely safe, but unless we know the optimum dose, we cannot say that it is safe. That is because fluoridated water has a cumulative effect. If my hon. Friend the Member for Banbury, in the beautiful rural constituency that he represents with such distinction, drinks more water than I do, he will absorb more fluoride into his system. Not only do we not know how much water people drink; it seems that we cannot assess the optimum dose.
Some recent research has been alarming. I quote the Daily Telegraph of 12th August, which is headlined
Fluoridated water may be harmful to plants".


It states.
Fluoridated water can have a stunting effect on plants, experiments on growing cress at Liverpool University reveal.
The cress also had the effect of concentrating the flouride, Mr. Jack Tolley, water toxicologist in the municipal laboratory of the Department of Civil Engineering at Liverpool University, found.
'If fluoridated water is used for agricultural purposes, and is concentrated in plants, man could be at the end of a poison food chain'.
He is implying, is he not, that there must be an optimum dose beyond which it is unsafe?
The Commission document implies that we do not have to worry about an optimum dose and that as long as there are 1·5 milligrams per litre in the water it is OK. It is not OK with me. How can fluoride be effectively monitored in accordance with Article 6 of the directive to ensure good health for water consumers if we do not know the optimum dose for good health.
I should like an answer from the Minister if he can give it, but my guess is that he will not be able to give me one. He has not applied his mind to the question, any more than the Secretary of State for Social Services applied his. Before unelected bodies start forcing fluoridation down any more people's throats, we should at least have an answer to the question that I have posed.

11.55 p.m.

Mr. Marks: I am grateful to all those who have taken part in this debate. As the hon. Member for Honiton (Mr. Emery) said, some speakers have answered queries raised by others. I shall do my best to reply to the points raised. There are continuing negotiations on this issue. My right hon. Friend the Minister of State is in Europe at the moment and will be in Brussels on Thursday for further negotiations. I assure the House that he will be made aware of all that has been said before he goes into those negotiations.
Dealing with Lord Bethell's remarks in the European Parliament, may I say that there is no intention on my part, and, I am sure, on the part of the Community, to make tap water of a uniform quality. What we are all trying to achieve is a better standard for water throughout the nine countries. The addition of fluorine compounds was a point

which I expected to be raised, although the directive is concerned only with the quality of standards in supply. It does not recommend the addition of fluoride and neither does it do anything to prevent fluoridation. It simply says that water should not contain more than 1·5 mg of fluoride.
In the schemes introduced in the United Kingdom the fluoride level is controlled at between 0·9 and 1·1 milligrams per litre, which is the amount found to give substantial protection against dental decay without risk of mottling of the teeth. This directive is irrelevant for the purposes of fluoridation, although I appreciate the point raised by some hon. Members, particularly the hon. Member for Burton (Mr. Lawrence), which I am sure my right hon. Friend the Secretary of State for Social Services, who deals with the medical side of these matters, will take to heart.
Turning to the question of right of entry, the public health authorities and the water authorities have the right to take samples in the normal course of their duties at the moment but it is a right which is rarely, if ever, used. We feel that the existing methods and legislation will be sufficient. We certainly do not propose any amending legislation.
The question of public expenditure was raised—

Mr. Spearing: Before the Minister leaves that point, will he deal with the issue of what is and is not in the document? The House is being asked to take note of the effect upon entry, and my hon. Friend has not answered my question about where this is dealt with in the directive.

Mr. Marks: I have not yet come to my hon. Friend's speech, and if I do not hurry I shall not have time to deal with it.
To replace all of the lead pipes, which are the main cause of one of our differences of opinion with fellow members of the Community, would require a considerable amount of money. The number of lead pipes used for water supply purposes, particularly in the older industrial districts, is considerable. A great deal of money would be needed to replace all of them at once. Much has been achieved through the slum clearance programme,


whatever might be said of its scale in our large cities. There is no doubt that considerable expense would be involved, certainly to reach the standard that the directive requests.
This is a complex problem. In the majority of cases little or no lead is dissolved from the lead pipes by the water. In a few cases, when water has been standing for some time in lead pipes, the amount of lead picked up can exceed the World Health Organisation standards of 100 micrograms per litre. The Department of the Environment, together with other Departments, has just completed a survey of lead in drinking water which will be published shortly. It shows the complexity of the situation. It has been assumed that it was soft water which dissolved the lead. The survey showed that in some cases soft water is not a lead solvent while in other cases hard water can contain lead. We are examining the results of the survey and will announce plans for dealing with the problem in the United Kingdom. Again I make the proviso that this is an expensive business.
I am grateful to the right hon. Member for Down, South (Mr. Powell), as I am sure our water authorities will be, for his tribute to those responsible for our water supply. I appreciate that he would say of many directives, as he said of this one, that it is nothing to do with the EEC. Whether we or they have a better quality of water or less pollution, we are members of the Community and I believe that we should welcome the Community's support in seeking to get better tap water supplies.
I, too, have visited the Continent and have seen young children trying water out immediately, whether the tap says "Water not drinkable" or "Water drinkable". We should welcome any attempt by the other eight member States of the Community to help us.
My hon. Friend the Member for Hartlepool (Mr. Leadbitter) asked whether the time of Parliament was being wasted. I must point out that this discussion is taking place on the Floor of the House at the request of the Select Committee.
I come now to the points raised by my hon. Friend the Member for Newham, South (Mr. Spearing). In his memorandum Lord Nugent assumed that the directive

would be held to apply at the tap and that sampling would be obligatory at that point. This is not so. The difficulty of enforcing the directive at the tap was pointed out, at water authorities are not responsible for the quality of water beyond the curtilage of a house. However, the water authorities have power to enforce byelaws by preventing waste, misuse and contamination of water and they have powers of entry for that purpose.
I apologise for the fact that the Explanatory Memorandum is not dated. I have noted my hon. Friend's remark in this respect. It is a remark that I often made in the past. The Explanatory Memorandum was prepared for the meeting of the Select Committee in July. There have been considerable negotiations since the document was prepared. The statement that member States shall determine the point of sampling is contained in Article 12(3) of the document R 2736/76 issued on 23rd November.
We are advised that the water authorities will be able to meet the coliform levels in the directive as published. In the World Health Organisation European standards for drinking water, the recommended level is less than 50 milligrams per litre.
My hon. Friend mentioned the Union of Water Supply Associations —EUREAU. This is an advisory body, not an executive one. The nine member States thought that there should be a more definite ruling.
My hon. Friend was referring to the World Health Organisation European standards for drinking water, which are advisory standards for water throughout Europe. The directive has been adapted for the special needs of the nine member States in the light of the improvement in knowledge and the experience gained since the WHO standards were published.
The hon. Member for Honiton mentioned the question of water rates. At this time of the year, many of us would like to talk about this question. We shall have an opportunity to do so on the Water Equalisation Bill, which I am sure the hon. Gentleman will welcome as a representative of the South-West.
The hon. Gentleman asked whether we should now be thinking about making water less pure. That is not a point of


view which will find favour in the country as a whole. In the past we were pacemakers in the provision of pure water, as my hon. Friend the Member for Hartlepool said. Perhaps the best pacemakers and our saviours during the recent drought were, in the main, those county borough authorities which spent so much money over the past 100 years on ensuring that we had a good system.
With regard to the point made by my hon. Friend the Member for Glasgow, Maryhill (Mr. Craigen), my hon. Friend the Under-Secretary of State for Scotland will be writing to him. As my hon. Friend pointed out, he has listened to the whole of the debate.
The hon. Member for Honiton asked whether the directive demands too high a degree of purity. We do not think it is too high, except in the case of lead, in regard to which, as an industrial country, we have had a particular problem for a long time.
The hon. Member also asked if we could simplify our treatment methods. That is a matter for the water authorities themselves. Many of the powers for dealing with questions of water supply have been devolved to the water authorities, which, in all cases, include a majority of local authority representatives.
In conclusion, I repeat that the debate has been a particularly valuable one. I am quite sure that my right hon. Friend, when my right hon. Friend talks to the representatives of the other member States in Brussels, he be putting these points extremely forcibly, as he has been putting them over the past 12 months. As we all know, he is capable of doing that.
It being one and a half hours after the commencement of proceedings on the motion, Mr. DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 3 (Exempted Business).

Question agreed to.

Resolved,
That this House reconising the existing duty of United Kingdom Water Authorities to provide sufficient and wholesome supplies of water, welcomes the EEC Draft Directive on the Quality of Water for Human Consumption (R/209875) and notes that it will not affect the extent to which authorities in the United Kingdom will need to enter premises to take samples.

Orders of the Day — NATIONALISED INDUSTRIES

Ordered,
That the Standing Order of 15th November 1974 relating to the nomination of the Select Committee on Nationalised Industries be amended, by leaving out Mr. Joe Ashton and inserting Mr. John Ellis.—[Mr. Walter Harrison.]

Orders of the Day — OIL AND GAS INFRASTRUCTURE (SCOTLAND)

Motion made, and Question proposed, That this House do now adjourn.—[Mr.Tinn.]

12.6 a.m.

Mr. Douglas Henderson: After trying for the Ballot for the Adjournment debate several times I am delighted to have the opportunity tonight to raise a subject which is probably of more concern to my constituents—and perhaps to those of my hon. Friend the Member for Banff (Mr. Watt)—than to any others in the United Kingdom. I am very pleased to see the Minister of State here to reply to the debate, because I feel that it shows that the Government are concerned about this matter. I look forward to hearing his comments at the end after he has heard what I have to say.
The nature of oil and gas developments in the North Sea to date has been such that very considerable pressures have been placed on the communities in Aberdeenshire and the North-East of Scotland as a whole to provide the facilities necessary to allow these developments to take place, and to provide them within a remarkably short space of time.
In my own constituency we have had developments at St. Fergus, at Peterhead and at Cruden Bay. All hon. Members will realise that coping with these projects and providing the infrastructure for them requires assembling men, material and equipment in substantial numbers and over a short period of time. It involves road improvements, expansion of drainage facilities, water supplies, schools houses and other community provisions. This in itself, because of the time scale, has caused conditions of disturbance and inconvenience to the communities concerned. These cannot be expressed in monetary terms,


but the Minister will be aware that considerable disturbance has been caused in many of these communities by the need for these developments to take place. What can be assessed in monetary terms is the additional call on the public purse to deal with these problems.
I was one of those who campaigned for special assistance to be given to areas such as Aberdeenshire, which are facing quite unprecedented expenditure as a result of oil and gas developments. I was delighted when the Secretary of State at the time conceded the case and took the appropriate powers under Section 12, and particularly under Schedule 2, of the Local Government (Scotland) Act 1975.
I feel that it is so important for the case I have to argue tonight that I should perhaps remind the Minister of the wording of Schedule 2, because this is the crux of the problem. Paragraph 5 of the Schedule says that
the Secretary of State may, as respects any year, make provision for the apportionment of a presribed part of the needs element
—that is, of the rate support grant—
among authorities incurring extraordinary expenses".
Sub-paragraph (2) of paragraph 5 says that
In this paragraph 'extraordinary expenses' means expenses of such categories and for such purposes as the Secretary of State, after consultation with such associations of local authorities as appear to him to be concerned, may determine should be supported by an apportionment under this paragraph".
To clarify the somewhat obscure tone of that paragraph, in Second Reading debate on 20th January 1975, the then Secretary of State said:
While the paragraph is expressed as relating to extraordinary expenses in general—not mentioning oil—the intention is to give assistance under it only to authorities affected by oil developments.
Replying to the debate, the then Minister of State—now Secretary of State—said:
I am glad that the oil provisions have been welcomed by hon. Members on both sides of the House. The reason why oil is not specifically mentioned in the Bill is that we want to maintain an element of flexibility. The provision may be used for other purposes in future, although I cannot anticipate what they may be. … By doing it in this way we shall be able to listen to representations from hon. Members and local authorities about the way in which we intend to operate the scheme,

and if we are not bound by a precise formula written into the Bill we can make changes." —[Official Report, 20th January 1975 Vol. 884, cc. 1038 and 1177.
It is refreshing to find an Act in which the powers are not so circumscribed that Ministers and those advising them have no opportunity of considering special difficulties in special cases. The indication that the right hon. Gentleman gave—that he would listen to representations from hon. Members and local authorities—is one that all those concerned will appreciate.
Tonight, I am speaking in support of my own local authority—which is also represented by my hon. Friend the Member for Banff—the Banff and Buchan District Council, which has made representations to the Minister. I am seeking to persuade the Government to reconsider their interpretation of the wording in the Schedule as it affects my constituency. My plea is in respect of a gas-related development. I understand that it falls, strangely enough, within the general definition of "petroleum".
The Offshore Petroleum (Scotland) Act 1975 refers to the Petroleum Production Act 1934, where petroleum is defined as
any mineral oil or related hydrocarbon and natural gas existing in its natural condition or state.
It cannot, therefore, be argued that gas-related projects fall into a different category from oil-related projects. The difference lies in the interpretation which the Secretary of State places on his willingness to assist local authorities with "extraordinary expenditure."
I make it clear that I support the proposition that the Secretary of State should not be too rigidly bound by these matters, and I welcome the flexibility. But this places on him the onus to examine with great care and sympathy the cases put to him by hon. Members and local authorities.
Since the passing of the 1975 Act, amounts have been allocated by the Government to meet this type of extraordinary expenditure. In a parliamentary answer to me on 11th November, the Minister of State gave the information that in 1975–76, £2½ million had been allocated and in 1976–77 £4·9 million. I understand, from the publication today of the Statutory Instrument on the Scottish rate


support grant, that the figure for 1977–78 is £7·3 million.
When one considers that these amounts are being shared by 18 different local authorities and that they represent only a small fraction of the benefits to the Exchequer of the projects concerned, the Government can hardly be accused, even by the most reactionary Members of the Conservative Party, of any wild and uncharacteristic generosity in the allocation of money for public expenditure.
One may say that this is a fairly modest assistance to those who are in the front line of providing so much of the wealth on which the Government place so much reliance. The specific case that has given impetus to my local authority's representations is the application by Scanitro to build an ammonia plant at Peterhead. This was, of course, subject to a public inquiry to consider an outline application which the company submitted. The Secretary of State subsequently empowered the district council, by Article 10 direction under the Town and Country Planning Act 1972, to issue planning permission, subject to conditions and reserve powers in respect of the development. So, in principle, it could be said that approval has been given, and the dilemma facing the authority is the cost of providing the infrastructure.
The Banff and Buchan District Council has advised me that the annual costs of providing the houses and services for which it is responsible is about £55,000. Although I have not had the same figures from the Grampian Regional Council, I understand that the cost to it of providing the services required would be approximately four times that amount. Therefore, between the region and the district, the annual charges would be expected to reach £250,000.

Mr. Hamish Watt: Does my hon. Friend agree that if this development were taking place in Norway the oil company would be expected to supply the infrastructure itself?

Mr. Henderson: I am grateful to my hon. Friend for that intervention. It brings me to the point that the local authority has endeavoured to solve the problem by asking the developer for assistance with the project, so far without

success. The developer has estimated the cost of establishing the plant at £50 million, and I am led to believe that the company can expect between £10 million and £12 million in Government money, mainly from development area grants, whereas the hard-pressed ratepayer in the area will get no mercy in the outlay that will be necessary to provide the infrastructure.
It cannot be assumed that there will be any real gain to the community from the rateable value of the project. It is thought that the rateable value will be about £800,000, yielding about £1·2 million in rates. That may seem marvellous, until it is realised that the poor old ratepayer will be no better off, because the level of rate support grant will be reduced accordingly. I challenge the Minister to deny that that will be the case.
Unless there is a change of heart by the Government the bill for providing the services will be presented to the ratepayers. The recent decision by ShellEsso to discontinue its planning application in Peterhead does nothing to strengthen the hand of the local community in its dealings with the developer.
The Scanitro plant would be fed by natural gas from the Frigg field as a result of an agreement by the United Kingdom and Norwegian Governments. One part of this agreement was that Norsk Hydro, one of the participants in the Scanitro consortium, would be allowed to buy back the gas at a specially low rate. This project has arisen as a result of the Frigg gas being landed at St. Fergus, consequent upon the Government decision.
The district council has already incurred costs in dealing with the project. Twenty thousand pounds has been spent on a public inquiry, and I want to know whether, irrespective of the results, this will qualify for special assistance, or whether that is another bill that the local ratepayer must pick up. I am not asking the Minister for an instant conversion or an eleventh-hour change of heart; I am asking for a reasonable and responsible answer, which will allow the case to be reconsidered. A quarter of a million pounds a year is not a large sum in full public expenditure terms, particularly if it will yield several millions of pounds a


year in relief to the balance of payments. If the Minister will say that he can see a purpose and merit in a meeting with myself, my hon. Friend the Member for Banff and the local authority representatives concerned to look again at this matter, I shall feel that perhaps we have made some progress, and that the stony heart of St. Andrew's House has been ever so slightly touched.
I welcome the Minister's continued personal interest in the problems of North-East Scotland. Last time he visited my constituency he brought the glad tidings that Peterhead Harbour was not to lose its independence and that the local people would continue to have their say in its running. Let him add to his reputation by agreeing to look again at the arguments on this matter and to hear the voices of the North-East which call for equity. We look at this as a test of the Government's good faith. The national Exchequer stands to gain a good deal from the development. Surely the local exchequer should not be penalised.

12.21 a.m.

The Minister of State, Scottish Office (Mr. Gregor MacKenzie): I listened with considerable interest to the speech of the hon. Member for Aberdeenshire, East (Mr. Henderson) and I am grateful to him for raising this important subject. It is indicative of the interest that the House shows in this subject that there is tonight the largest attendance I have seen for an Adjournment debate for several years. Three parties are represented, which is an indication of the interest in the important oil and gas developments which are taking place in Aberdeenshire, East.
Aberdeenshire, East is a constituency which I know exceedingly well, having on one occasion attempted to persuade electors there to send me here—albeit that they preferred to send Sir Robert Boothby instead. I have never held that against them and, since then, I have always listened to them with considerable interest. It is right for the hon. Member for Aberdeenshire, East to stress his concern that expenditure on the infrastructure needed in support of development should not fall unnecessarily upon the local authorities within whose area the development lies. I welcome the opportunity to set out Government policy on this matter.
Local authorities receive, in the normal course, specific Government grants and subsidies directly related to the cost of providing certain services, such as housing, police, water supplies and sewerage. They also receive rate support grant, which is the means by which the Government give general financial support to local authorities to help pay for the services which they are statutorily required to provide, and which would otherwise fall on local rates alone. Rate support grant is given in aid of local revenues generally and not towards any one service.
Certain local authorities most affected by the impact of the North Seal oil discoveries had pressed on our predecessors the need for some special assistance as the population built up very rapidly. Soon after we came to power in 1974 the Government recognised that certain local authorities were being required to meet relatively heavy expenditure in providing the infrastructure required for offshore oil and gas developments and that these expenditures were placing on their rating resources an additional burden for which the normal system of financial support did not adequately cater. This was mainly because rate support grant is based on historical expenditure, and in the distribution of grant it is difficult to take account of rapid developments affecting a particular authority.
In such circumstances my right hon. Friend the then Secretary of State announced, in November 1974, that special financial assistance would be given to authorities providing additional infrastructure essential in support of oil and gas related developments. I am grateful to the hon. Member for Aberdeenshire, East for the remarks that he made tonight about that decision.
The special assistance is given in aid of a local authority's current expenditure. This means that the grant directly covers expenditure on such items as the cost of additional maintenance and of extra staff recruited because of oil and gas developments. More important, in the case of capital projects such as housing, new schools, road construction and drainage schemes, the grant covers the net loan charges which an authority has to pay when it borrows to finance these projects.
I need not trouble the House with details of what is a rather technical exercise, but the net effect of the grant as it has been operated so far is that Government grants have covered the increase in local rates which would otherwise have occurred. In short, the Government, in introducing the special assistance arrangements, were concerned to ensure that the cost of providing oil-and gas-related infrastructure did not fall unreasonably on the ratepayers of a limited number of local authorities.
The Government's decision was, of course, welcome, but the arrangements could not be open-ended. Certain criteria must be satisfied before expenditure is accepted for the special financial assistance. There are two main criteria. First, expenditure must be on works or services provided or extended because of developments relating to the exploration for, or exploitation of, petroleum in the North Sea or in any other part of the Continental Shelf. Secondly, the works or services must, in the view of my right hon. Friend, be essential and not merely desirable.
One main effect of these criteria is to exclude—and the circular is very clear on this point—the provision of infrastructure associated with oil refining or petrochemical projects. This seems to be a perfectly valid distinction—the Government wished to spare local authorities from the impact of servicing activities necessary in the national interest to get the oil and gas ashore. The Government, of course, wish to encourage downstream development, but we see this as normal industrial development using the available feedstocks.
At this point it is perhaps convenient to stress that petroleum in this context is taken to include not only oil but gas. This is the common interpretation within the oil business, and the various statutory definitions carry this meaning. It may be that the circular to local authorities does not make it sufficiently clear that gas-related infrastructure qualifies for the special assistance. My understanding is that local authorities are fully aware that gas-related expenditure does qualify for grant, but I shall certainly consider whether for subsequent years the circular could be expanded to meet this point.

Mr. Watt: Does the Minister not agree that extra classrooms for the children of the men who have come in to create the infrastructure of which he talks are essential, and not luxuries?

Mr. MacKenzie: That is the whole point of this debate. I am doing my best to meet the points raised by the hon. Member for Aberdeenshire, East. There are grants to cover many of these matters. I have already stressed that fact.
It is, however, clear that infrastructure provided in support of gas developments is eligible for the special assistance providing—and this is crucial—the developments were essential to the exploration and extraction of the gas. Within the Aberdeenshire, East constituency for example, assistance has been payable in respect of the 149 houses provided by Banff and Buchan District Council at Keyhead, St. Fergus, for personnel employed at the gas terminal there; and again at Keyhead, grant is being paid on capital expenditure incurred in the provision of recreational facilities. The hon. Member for Aberdeenshire, East can be assured, therefore, that local authorities incurring additional expenditure in the provision of infrastructure as a consequence of developments related to the exploration and extraction of gas will qualify for special assistance in the same way as they do for oil-related projects.
The hon. Gentleman referred to the ammonia plant at Peterhead, planned by Scanitro, and questioned the decision that infrastructure provided in the support of this project would not qualify for special assistance. I have followed the hon. Gentleman's arguments with interest. The fact is, however, that the project is the outcome of a purely commercial decision to use as feedstock gas from the Frigg field which is landed at St. Fergus. After the separation process at the St. Fergus terminal the gas is fed straight into the British Gas Corporation grid, and the ammonia plant will utilise the gas purchased from BGC without further separation. In other words, it cannot be held that the plant is essential to the main activities of exploration or extraction of the gas, as is, for example, the St. Fergus terminal itself.
I have discussed this case with Banff and Buchan District Council during my visit to the area in September. The


council had represented—I hope the hon. Member did not misunderstand the answer I gave him on 5th November—that infrastructure provided in connection with the plant should be eligible for assistance. I am not persuaded by these representations. The hon. Member will appreciate that somewhere a dividing line must be drawn. We have established criteria against which claims for special assistance must be set, and I am satisfied that in this case the decision we have taken is correct.
It has been suggested that the siting of the plant is in some way tied to an agreement between this Government and the Norwegian Government relating to Frigg Gas. I can assure the House that the Government were not party to any agreement which provided for favourable treatment of a Scandinavian company in return for the landing of Norwegian Frigg gas in the United Kingdom. Nor were the Government party to any agreement in relation to a location for development associated with the landing of the gas which in any way pre-empted the planning decision on the siting of the Scanitro plant. The firm's proposal to build in the Peterhead area was therefore not one flowing from any Government action, but was based on normal commercial arrangements.
The hon. Gentleman also argued that to the extent that Banff and Buchan benefit from additional rate income flowing from the Scanitro project, they would suffer in terms of rate support grant. In this respect, however, the district would be in no different position from any other rating authority in whose area is located a major industrial development. This, of itself, is no argument for special treatment.
The hon. Gentleman also drew attention to the fact that the Scanitro project could benefit from normal regional incentives on a scale which makes possible Government assistance for infrastructure relatively insignificant. The point here, of course, is that he is not comparing like with like. The regional incentives are generally available to encourage much-needed

development in assisted areas. Government assistance with oil-related infrastructure is a special scheme designed to meet very specific circumstances.
In the context of what is happening in the North-East of Scotland, I know that there is concern about the Shell-Esso separation plant. The issue has been raised from time to time. The companies at one time proposed to locate such a project in the hon. Member's constituency. Shell-Esso has now decided to seek planning permission for a site in Fife. I can appreciate that this is a disappointment to some of the hon. Member's constituents, but I emphasise that the companies' decision was taken on the basis of commercial judgment. The Government in no way sought to influence the decision.
I have sought tonight to underline the Government's determination that local authorities should not be required to meet, to an unreasonable extent, additional expenditure arising from the provision of infrastructure in support of oil-and gas-related developments. The special assistance arrangements that we have introduced are the earnest of that resolve and I am grateful to the hon. Member for mentioning that. The provisional settlements reached in the two years during which the assistance has been made available amount in 1975–76 to £2·5 million and in 1976–77 to almost £5 million—a substantial additional contribution. As the hon. Gentleman has said, the Order for 1977–78, laid today, includes a figure of £7·3 million for Scotland as a whole. I would not wish to let this opportunity pass without commending all the Scottish local authorities concerned for the splendid way in which they have risen to the challenge thrown up by the advent of oil and gas—

The Question having been proposed after Ten o'clock on Monday evening, and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at twenty-four minutes to One o'clock.